Securities Law & Instruments

 



NOTICE OF PROPOSED CHANGES TO

NATIONAL INSTRUMENT 81-101, FORMS 81-101F1
AND 81-101F2
AND COMPANION POLICY 81-101CP
MUTUAL FUND PROSPECTUS DISCLOSURE

 

Substance and Purpose of Proposed National Instrument, Forms and Companion Policy

Introduction

On July 31, 1998, the Canadian Securities Administrators (the "CSA") published for comment proposed National Instrument 81-101Mutual Fund Prospectus Disclosure (the "1998 Draft Instrument"), Form 81-101F1 (the "1998 Draft SP Form"), Form 81-101F2 (the"1998 Draft AIF Form") (collectively, the "1998 Draft Forms") and Companion Policy 81-101CP (the "1998 Draft Companion Policy").(1)

During the comment period, which ended on October 30, 1998, the CSA received submissions on these instruments from thirteencommenters. Appendix A of this Notice lists the commenters. Appendix B to this Notice contains a detailed discussion of the moresubstantive general comments made. A summary, in tabular form, of all comments received on specific sections and proposeddisclosure items, together with the CSA responses to those comments, is also provided. As the result of the consideration of thosecomments and as the result of further consideration of these instruments, the CSA are proposing a number of amendments to thematerials published in July 1998, and are therefore publishing for a second time the proposed National Instrument, Forms andCompanion Policy.

The proposed National Instrument, Form 81-101F1 (the "SP Form"), Form 81-101F2 (the "AIF Form") (collectively, the "Forms") andCompanion Policy are a reformulation of National Policy Statement No. 36 ("NP36"), which they will replace. Through these proposedinstruments, the CSA seek to implement a new regulatory regime governing the disclosure provided by mutual funds in satisfactionof the prospectus requirements of securities legislation.

The proposed National Instrument, Forms and Companion Policy are initiatives of the CSA, and the proposed National Instrumentis expected to be adopted as a rule in each of British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, as a Commissionregulation in Saskatchewan and as a policy in all the other jurisdictions represented by the CSA. The proposed Forms are expectedto be adopted as rules in Ontario. The proposed Companion Policy is expected to be implemented as a policy in all of thejurisdictions represented by the CSA.

The Commission des valeurs mobilières du Québec (the "CVMQ") notes that its securities legislation provides for a specific simplifiedprospectus disclosure regime for mutual fund disclosure (similar to NP36). The CVMQ is reviewing its securities legislation todetermine how it can best integrate the disclosure regime proposed by the proposed National Instrument with its mandated mutualfund prospectus disclosure regime.

In Ontario, the Ontario Securities Commission (the "OSC") published for comment Rule 41-502 Prospectus Requirements for MutualFunds on June 27, 1997 at (1997) 20 OSCB (Supp 2) 137. The OSC intends to make Rule 41-502 as a rule at the same time as itmakes the proposed National Instrument as a rule in Ontario. If Rule 41-502 comes into force before Rule 41-501 GeneralProspectus Requirements becomes a rule, the OSC will amend Rule 41-502 to provide that only sections 1.2, 5.3, 6.1 and 7.1 of Rule41-502 come into force at the same time as the proposed National Instrument. The other sections of Rule 41-502 do not relate toproposed National Instrument, and the OSC will amend Rule 41-502 to provide that those sections come into force at the same timeas Rule 41-501. No material changes are expected to be made to Rule 41-502 and it accordingly has not been republished forcomment at this time.

Terms used in the proposed Companion Policy that are defined or interpreted in the proposed National Instrument or a definitioninstrument in force in the jurisdiction and not otherwise defined in the proposed Companion Policy should be read in accordance withthe proposed National Instrument or that definition instrument, unless the context otherwise requires.

This Notice summarizes in a general manner the changes made in the proposed National Instrument, Forms and Companion Policyfrom the versions published for comment in 1998. As described above, Appendix B to this Notice outlines the comments receivedin respect of those materials, together with CSA responses. Further background and explanation of changes are contained in thefootnotes contained in the proposed National Instrument and Companion Policy.

Revocation of CSA Notice

Effective the date that the proposed National Instrument comes into force, CSA Notice 81-301 Mutual Fund Prospectus DisclosureSystem - Concept Proposal - Request for Comments(2) will be revoked. This notice is superseded by the matters contained in theproposed National Instrument.

Background

The proposed National Instrument, Forms and Companion Policy are the culmination of a regulatory review process initiated in late1995 by the CSA Mutual Fund Committee to review the adequacy of disclosure being provided by mutual funds in simplifiedprospectuses. As part of this initiative, the CSA released for comment, in January 1997, a Concept Proposal (CSA Notice 81-301,referred to in the preceding paragraph) that described the Committee's recommended replacement mutual fund prospectus disclosuresystem, then named the "Summary Information Prospectus Disclosure System". Following consideration of the comments receivedin connection with the Concept Proposal, the CSA developed the proposed National Instrument, Forms and Companion Policy andpublished them for comment in July 1998.

The Notice published with the 1998 Draft Instrument (the "1998 Notice") describes the background to the proposed NationalInstrument, Forms and Companion Policy and the general policy considerations of the CSA in developing those instruments.

Consumer Input

Along with publishing the 1998 draft documents for general public comments, the CSA sought specific consumer input into theirproposals. As described in the 1998 Notice, the CSA consider it important to receive feedback from investors on their disclosureproposals. The CSA worked with The Investment Funds Institute of Canada ("IFIC") and six mutual fund companies to "test market"the fund summary concept proposed in the 1998 Draft Instrument. Mackenzie Financial Corporation, Trimark InvestmentManagement Inc., Global Strategy Financial Inc., Investors Group Inc., CentrePost Mutual Funds and TD Asset Management Inc.prepared fund summaries that complied with the 1998 Draft Instrument and the 1998 Draft SP Form for certain of their funds. IFICengaged AC Nielsen.DJC Research ("AC Nielsen") to carry out a comprehensive research program, using the fund summariesprepared by the six mutual fund companies. The research program was designed to assess whether the proposed disclosure conceptmet the needs of investors and offered improvements over current disclosure requirements. The report of AC Nielsen (the "NielsenReport") forms part of the comment letter of IFIC submitted to the CSA in response to the CSA's request for comments. AC Nielsen'sfindings, along with the methodology it used to carry out its research program, are summarized in Appendix B to this Notice. TheCSA appreciate the efforts of the six mutual fund companies and IFIC in having this consumer research carried out and, as describedin Appendix B, found the information provided in the Nielsen Report informative and very helpful to them as they moved forward withthe prospectus disclosure changes.

In addition to encouraging the consumer research carried out on behalf of IFIC, the OSC engaged Angus Reid Group, Inc. ("AngusReid Group") to conduct a series of focus groups with mutual fund investors. Three focus groups were held. The groups werecomprised of individuals belonging to the following three organizations:

Canadian Shareowners Association

Canadian Association of Retired Persons

Canadian Consumers' Association.

The report of Angus Reid Group to the OSC is discussed in Appendix B to this Notice. The CSA thank the consumer organizationsand the individuals who participated in the focus groups; their input was valuable.

Task Force and Other Reports

During the comment period, three significant publications were released:

Change Challenge Opportunity The Report of the Task Force on the Future of the Canadian Financial ServicesSector, September 1998 (the "MacKay Task Force Report");

The Governance Practices of Institutional Investors Report of the Standing Senate Committee on Banking, Tradeand Commerce, The Honourable Michael Kirby, Chair, November 1998 (the "Kirby Report"); and

Investment Funds in Canada and Consumer Protection Strategies for the Millennium A Review by GlorianneStromberg Prepared for Office of Consumer Affairs, Industry Canada, October 1998 (released in January 1999)(the "Stromberg Industry Canada Report").

The CSA considered the recommendations made in each of the above reports that relate to disclosure to investors, particularly thoserecommendations that focus on mutual fund prospectus disclosure, in finalizing the proposed National Instrument, the Forms andthe Companion Policy.

The recommendations made in chapter 7 of the MacKay Task Force Report entitled "Empowering Consumers" have the most directrelevance to the CSA's work to improve mutual fund prospectus disclosure. Background Paper # 3, Empowering Consumers,contains a more in-depth discussion of the issues identified. These recommendations were made without focussing on the securitiesindustry and securities regulation; however they are relevant to the CSA's work to finalize the proposed National Instrument. Theauthors identify "transparency, with clear, easily understood and timely disclosure of product terms and conditions, risks, andconditions of sale" as being one of the fundamental characteristics of a desirable financial services sector. The authors also makea useful distinction between "disclosure", which is "what information is provided", and "transparency", which is "concerned with theclarity of that information; how understandable is it to the consumer?". The authors recommend the following principles for a bestpractices guideline promoting transparency in the marketing of financial products:

presentation clarity - short, direct sentences; language, phrasing, illustrations, colour and images appropriate forthe target audience, with jargon, legal terms, charts and equations reserved for audiences familiar with these tools;

organizational clarity, with important information highlighted;

brevity; the authors note "transparency is greatly facilitated by conciseness. From the consumer's point of view,adequate transparency has been achieved when a communication has lowered the cost of search to an acceptablelevel"; and

timing; essential information must be provided before a purchase is made.

The MacKay Task Force Report also recommends that regulators should require "meaningful disclosure" of fees and commissionsand that user testing for readability and comprehensibility of documents should be made part of the development of documents.

The CSA agree with the above principles as they relate to mutual fund prospectus disclosure. The proposed National Instrument andForms are designed to achieve many of the same objectives. However, as noted in the 1998 Notice, the proposed NationalInstrument does not change the prospectus delivery requirements under securities legislation nor the rights of investors to withdrawfrom a purchase within specified time frames following receipt of the prospectus.

The Kirby Report does not deal primarily with mutual fund prospectus disclosure, although some of the recommendations focus onimproving the availability of information about mutual funds. A central recommendation contained in the Kirby Report is that mutualfund managers should disclose to investors their risk management and corporate governance practices. The CSA note that theproposed AIF Form requires disclosure concerning the governance of mutual funds. The CSA are presently considering whatadditional regulations, if any, they will propose concerning improving governance of mutual funds and will take into account therecommendations made in the Kirby Report during such consideration.

The Stromberg Industry Canada Report outlines many recommendations aimed at reducing the "knowledge gap" that Ms. Strombergbelieves exists between consumer/investors and mutual fund companies and distributors. Her recommendations are designed toenhance the knowledge and awareness of investors. Ms. Stromberg also analyses the 1998 draft instruments and outlines herconcerns with the proposed CSA mutual fund prospectus regime:

the 1998 Draft National Instrument and the 1998 Draft SP Form do not permit all relevant information about amutual fund or group of funds to be included in one document;

since only the fund summary is required to be delivered to investors, relevant information contained in the fundprospectus cannot be considered to be disclosed to investors; this concern remains notwithstanding that investorscan request the fund prospectus;

the fund summary document is too long and too rigid in what it must and must not contain;

the requirements for outlining the investment objectives and policies of a mutual fund do not result in appropriatelyidentifying the portfolio risk of the mutual fund;

the fund summary is not a substitute for a needed point-of-sale disclosure document; and

securities legislation does not require a fund summary to be delivered before an investment decision is made; Ms.Stromberg notes that legislative changes would be necessary in order to require such delivery.

Ms. Stromberg suggests enhancements for the CSA's proposed disclosure regime:

require delivery of a plainly written, generic, educational information document about mutual funds; this documentwould be delivered as early as possible in the investment process;

require all relevant information to be provided, or at least permitted to be provided, in one simple but completeoffering document - the fund prospectus. This document would be actually delivered before a decision was madeand would be written in plain and simple style without repetition;

require delivery of a term sheet (point-of-sale outline) either before or with the trade confirmation;

require material documents to be posted on Internet websites, with their availability noted for investors; and

require disclosure about the overall portfolio risk of a mutual fund.

The CSA have considered the recommendations made by Ms Stromberg, along with the other comments they received on the 1998draft instruments. As described in this Notice of Proposed Changes, the CSA are not proposing fundamental shifts in their approachto mutual fund prospectus disclosure. Among other things, the Nielsen Report emphasized that investors want essential informationabout their mutual fund investment to be given to them, but will tend not to read a lengthy, detailed document containing "complete"information. Packaging of information for the different needs of different investors is important. The CSA have adopted changesdesigned to resolve the concerns raised by Ms Stromberg and others that the 1998 Draft SP Form was too rigid and could haveresulted in an overly-lengthy, repetitious, boilerplate document.

CSA Approach to Mutual Fund Prospectus Disclosure

The 1998 Notice describes the CSA's overall philosophy and approach regarding mutual fund prospectus disclosure and discussestheir approach vis-a-vis the recommendations contained in the 1995 report prepared by then Commissioner Glorianne Stromberg.(3)

Although the CSA are proposing the changes described in this Notice to the instruments released in July 1998, they have notfundamentally changed their approach to mutual fund prospectus disclosure. As they stated in the 1998 Notice, the CSA wish to re-affirm as a regulatory strategy for mutual fund prospectus disclosure, the original goals of NP36 to ensure that:

each mutual fund investor receives a concise outline of important information about his or her mutual fundinvestment, via a short, readable, informative document; and

those investors who would like additional information about their mutual fund investments have easy access to thisinformation contained in a separate readable and informative document, as well as to the financial statements ofthe mutual fund.

Through the proposed National Instrument, Forms and Companion Policy, the CSA are building on those original goals by:

revising and updating the items of disclosure required in both a simplified prospectus received by all investors andin an annual information form available for those investors who request it, to better address the information needsof investors;

ensuring that the costs to investors, both directly paid by them and indirectly borne through charges against theassets of mutual funds, are better described, using every-day examples with illustrative dollar figures and ensuringthat investors have additional information on what proportion of the management fees paid by mutual funds arepaid by fund companies to dealers as distribution costs and sales incentives;

ensuring that a simplified prospectus is written using plain language and is presented in an easy-to-read,standardized fashion that facilitates comparison of information about different mutual funds;

ensuring that a simplified prospectus remains a manageable, readable document by limiting the extent to whichnon-essential information is provided in it;

encouraging industry participants to provide investors with educational information that explains an investment ina mutual fund, either through the use of an industry generic investor education document or through the additionof relevant educational information in, or attached to, a simplified prospectus;

providing investors with more relevant financial information about mutual fund investments, by substituting user-friendly, understandable financial highlights in a simplified prospectus in place of mandated point-of-sale deliveryof financial statements;

better articulating the purpose of an annual information form as a document that does not necessarily repeat thedisclosure contained in a simplified prospectus, but provides additional information for those investors who wishto review this information either before or after their investment in a mutual fund; and

ensuring that investors are made aware that they can obtain further information about a mutual fund if they wish,and facilitating the receipt by the investor of that information.

The CSA noted in the 1998 Notice that improving mutual fund prospectus disclosure is an important part of their goal to ensure thatinvestors have better, more relevant information available to them so that they can make more informed decisions about theirinvestments in mutual funds. An equally important component of this goal is the CSA's project to determine where improvementscan be made in the financial and other information provided to investors on a continuous basis after investment. The CSA areconsidering the various options available to them to achieve this goal, including a requirement that fund managers analyze anddiscuss the performance of a mutual fund over its past financial year in an annual report to accompany the annual audited financialstatements.

Substance and Purpose of Proposed Instruments

The proposed National Instrument and Forms are designed to implement a new regulatory regime governing the disclosure providedby mutual funds in satisfaction of the prospectus requirements of securities legislation. The proposed National Instrument willimplement and provide the framework for the system, by requiring the preparation and filing of a simplified prospectus and annualinformation form by all mutual funds. The proposed National Instrument will also require that both these disclosure documents beprepared in certain formats.

The proposed SP Form provides detailed disclosure requirements for a simplified prospectus of a mutual fund, and the proposed AIFForm provides detailed disclosure requirements for an annual information form of a mutual fund.

The proposed Companion Policy describes the central philosophy of the CSA in proposing the mutual fund prospectus disclosureregime; in particular, it describes the purpose of a simplified prospectus and an annual information form. The proposed CompanionPolicy also provides further explanation of certain of the rules contained in the proposed National Instrument and certain disclosureitems of the Forms.

The regime created by the proposed National Instrument and Forms is designed for conventional mutual funds, and certain mutualfunds are specifically excluded from the regime by the proposed National Instrument. The excluded mutual funds consist of labour-sponsored venture capital corporations, commodity pools and mutual funds listed and posted for trading on a stock exchange orquoted on an over-the-counter market.

Summary of General Changes

The CSA are proposing a number of general changes to the proposed mutual fund prospectus regime from the approach describedin the 1998 Notice and reflected in the 1998 Draft Instrument, the 1998 Draft Forms and the 1998 Draft Companion Policy. Thosechanges are discussed in this part of this Notice. The specific changes made to the proposed National Instrument, Forms andCompanion Policy are described following this part of the Notice.

Names of Key Documents

The terms "fund summary" and "fund prospectus" used in the 1998 materials have been replaced with the terms "simplifiedprospectus" and "annual information form", respectively, as the CSA have decided to continue to use the terminology in describingthe basic disclosure documents of mutual funds currently used under NP36.

The CSA are proposing this approach for two reasons. First, the CSA believe that the mutual fund industry and investors are familiarwith existing terminology. Second, as described below, the CSA are proposing a change in the structure of the annual informationform in the proposed National Instrument and related forms from what was proposed for a fund prospectus in the 1998 DraftInstrument. A fund prospectus was conceived as a complete prospectus document, one that could be read independently of a fundsummary. The CSA have decided to structure an annual information form as a document that supplements, without necessarilyrepeating information contained in, the prospectus. Therefore, the use of the term "simplified prospectus" is more appropriate thanthe term "fund summary" because the document is not now a summary of a larger, complete document.

Purpose of the Annual Information Form

The proposed National Instrument and the AIF Form contemplates that a supplemental disclosure document, the annual informationform, will be provided to any person on request. Information contained in the related simplified prospectus will generally not berepeated in an annual information form except as necessary to make the annual information form comprehensible as an independentdocument. Generally speaking, the CSA view the annual information form as a document that provides disclosure about differentmatters than those discussed in the simplified prospectus, such as information concerning the internal operations of the managerof the mutual fund, which may be of some assistance or interest to investors.

The CSA are proposing this approach in light of the comments made in the Nielsen Report that fund prospectuses (now annualinformation forms) may not receive wide distribution among investors, and that it was therefore unnecessary to restructure the existingannual information form from the NP36 approach to accommodate wide circulation. The Nielsen Report also emphasized thatinvestors will disregard documents that repeat information; once investors find repetition, they will tend to discontinue reading therest of the document.

"Packaging" of Simplified Prospectuses

A number of changes to the proposed National Instrument and Forms have been made to accommodate concerns raised bycommenters that the form of fund summary proposed by the 1998 Draft Instrument and 1998 Draft SP Form would be too lengthyfor investors if the fund summary pertained to a large number of mutual funds. A number of commenters requested that the CSAdevelop an approach that would permit a mutual fund organization to distribute to an investor only fund-specific information thatpertained to mutual funds in which the investor had an interest. The Nielsen Report also indicated that undue length of documentswas a major deterrent to investors deciding to take the time to properly read and absorb information.

The CSA have favourably received those comments, and have amended the proposed National Instrument and Forms in a mannerthat will permit mutual fund organizations to structure their simplified prospectuses so that they will be able to deliver to an investoronly fund-specific information that relates to mutual funds in which the investor has an interest.

In order to accomplish this goal, a number of structural changes have been made to the proposed National Instrument and Forms,as discussed below.

Formal Division of a Simplified Prospectus into two Parts

Under the 1998 Draft Instrument and 1998 Draft Forms, a fund summary was required to contain a section containing generalinformation about mutual funds and the mutual fund family to which it pertained, and a fund-specific section describing each mutualfund to which the document pertained. The fund-specific sections were required to be printed using a catalogue approach, in whichno fund-specific information for one mutual fund could be consolidated with the fund-specific disclosure for another mutual fund.

This concept has been continued in the proposed National Instrument, with the terminology being changed to make the distinctionmore clear. Under the proposed National Instrument, a simplified prospectus consists of two sections: a Part A section, whichprovides introductory information about the mutual fund, general information about mutual funds and information applicable to themutual funds managed by the mutual fund organization, and a Part B section, which contains specific information about the mutualfund. The proposed SP Form has been changed to reflect this approach.

Clarification that a Simplified Prospectus and Annual Information Form pertain to only one Mutual Fund

NP36 contemplates the consolidation of the disclosure concerning a number of mutual funds into one document. What NP36 implies,and what the proposed National Instrument makes explicit, is that a consolidated "simplified prospectus" pertaining to a number ofmutual funds is in law a number of separate simplified prospectuses, one simplified prospectus for each mutual fund. Further, areceipt issued by a Canadian securities regulatory authority in connection with a consolidated "simplified prospectus" in law representsa separate receipt for the simplified prospectus pertaining to each mutual fund to which the document pertains. The proposedNational Instrument and SP Form now make clear that a simplified prospectus pertains to one mutual fund and use the term "multipleSP" to refer to a document that contains more than one simplified prospectus.

This distinction has been made explicit in order to clarify the statutory prospectus delivery obligation that arises on the sale of asecurity of a mutual fund if the two parts of the simplified prospectus are not bound together, as discussed below.

Consolidation of Simplified Prospectuses

The proposed National Instrument allows a simplified prospectus to be consolidated with one or more simplified prospectuses to forma "multiple SP" unless the Part A section, the general information section, of each simplified prospectus is not substantially similar.In the view of the CSA, the term "substantially similar" would be applicable in this context if there was a high degree of similaritybetween the Part A sections of the simplified prospectuses that are proposed to be consolidated. This option would be availablegenerally to mutual funds in the same mutual fund family that are administered by the same entities and operated in the samemanner. There may be some deviation between the disclosure that would be provided for some of the mutual funds; those deviationshave been largely contemplated by the proposed SP Form.

Physical Separation of the Part A and Part B sections of a Multiple SP

The proposed National Instrument has been changed to allow the Part B sections of a multiple SP to be bound separately from thePart A section. In addition, the proposed National Instrument permits the physical separation from each other of each Part B sectionthat pertains to a different mutual fund. This would permit an investor to be provided with a Part A section that describes the mutualfund family and mutual fund organization generally, and only the Part B section or sections, or fund-specific disclosure, that relateto the mutual fund or funds in which the investor is interested. This approach could permit a "back pocket" approach in which thePart B sections of a multiple simplified prospectus could be inserted in a pocket contained on the back cover of the Part A sectionof the document.

Clarification of Delivery Obligations

The proposed National Instrument and Companion Policy have been amended to clarify how the statutory obligations to deliver aprospectus are satisfied in the context of a simplified prospectus in which the Part A section is physically bound separately from thePart B section.

Section 3.2 of the proposed National Instrument provides that the requirement under securities legislation to deliver or send aprospectus for a mutual fund is satisfied by the delivery or sending of a simplified prospectus for the mutual fund. Section 7.3 of theproposed Companion Policy clarifies that this obligation would be satisfied only by the delivery of both the Part A and Part B sectionsof a simplified prospectus.

The combined effect of these provisions allows a mutual fund to separate physically its Part A and Part B sections of a multiplesimplified prospectus, and still satisfy the statutory obligations to deliver a prospectus by delivering the Part A section of the multiplesimplified prospectus and the Part B section that pertains to the mutual fund being purchased. Because the proposed NationalInstrument clarifies that a simplified prospectus pertains to only one mutual fund, the non-delivery of the Part B sections of a multiplesimplified prospectus that pertain to mutual funds not being purchased is irrelevant, as those sections are not part of the simplifiedprospectus that pertains to the mutual fund being purchased.

Flexibility

A number of commenters stated that the regime proposed by the 1998 Draft Instrument and 1998 Draft SP Form was generally toorigid and did not permit mutual fund organizations enough flexibility in creating, and organizing the contents of, their documents.Comments were also received that the regime would result in excessively long documents with considerable amounts of repetitionin each fund-specific section.

The CSA have made a number of changes to the proposed National Instrument and Forms to address these concerns in order toensure that mutual fund organizations have the flexibility to create documents that are accessible and easily-read and understoodby investors. The main changes in this regard, as described above, are those made to permit "packaging". Other changes have beenmade as well, including allowing:

mutual fund organizations to combine the mandated explanatory disclosure in each Part B, or fund-specific, sectionof a multiple SP into one section, so as to eliminate the need to have that information repeated in each Part Bsection;

greater flexibility in the placement of educational material in a simplified prospectus;

greater flexibility in the location of the Part B sections of a multiple SP in which the Part B sections are not boundseparately from the Part A section; and

mutual fund organizations to state the required disclosure in language of their choice, through the reduction ofsuggested disclosure in the Forms.

The CSA are satisfied that the additional flexibility provided by these changes does not compromise the achievement of theircontinuing policy objective of requiring sufficient standardization of prospectus disclosure so as to permit easy comparability byinvestors of one simplified prospectus with another.

Summary of Proposed Changes to the Proposed National Instrument, SP Form, AIF Form and Companion Policy from theVersions Published in 1998

This section describes the changes made in the proposed National Instrument, SP Form, AIF Form and Companion Policy from theversions published in 1998. Changes of a minor nature, or those made only for purposes of clarification or for drafting reasons, aregenerally not discussed.

Proposed National Instrument

Section 1

Section 1.1 has been amended by the creation of the definitions "multiple AIF", "multiple SP", "Part A section", "Part B section", "singleAIF" and "multiple AIF" in order to implement the general changes described above.

A definition of "plain language" has been included in order to give mutual funds an objective "reasonable person" test against whichthey can gauge the clarity and transparency of the disclosure provided in simplified prospectuses and annual information forms. TheCSA propose this change in light of remarks made by language experts that the term "plain language" on its own is relativelymeaningless without some context.

Section 3.3

Section 3.3 has been amended by the addition of subsection (2), which requires a mutual fund to deliver or send its current simplifiedprospectus, along with an annual information form, to any person or company that requests the annual information form. The deliveryof the simplified prospectus is not required if the mutual fund has previously delivered or sent that document to the person orcompany. This change has been made because an annual information form is no longer structured as a complete disclosuredocument as it was in the 1998 draft materials. The CSA wish to ensure that any person or company that receives an annualinformation form also has the corresponding simplified prospectus to ensure that he, she or it has a more complete disclosurepackage.

Section 4.1

Paragraphs 4.1(2)(b) and (c) have been amended to permit the placement of the Part B section of a simplified prospectus at anylocation in the simplified prospectus, unless the Part B section is being bound separately from the Part A section of the document.Paragraph 4.1(2)(b) of the 1998 Draft Instrument required a fund summary to present the items in the order stipulated in the requiredform. The 1998 Draft SP Form specified the location of the fund-specific information in a fund summary, without permitting anyflexibility in this regard.

Changes made to section 4.1 reflect the general changes described above in respect of the "packaging" of simplified prospectuses.

Section 4.2 of the 1998 Draft Instrument has been deleted. That section required that educational information be contained insidebars or otherwise physically separated from the mandated disclosure contained in a simplified prospectus, and close to themandated disclosure to which it pertains. The CSA have made this change in recognition of the usefulness to investors of educationalmaterial and in light of the comments received to the effect that mutual fund organizations should be given more flexibility in designingreadable simplified prospectuses.

Section 5.1

Subsection 5.1(1) provides that a simplified prospectus may not be consolidated with one or more other simplified prospectuses toform a multiple SP unless the Part A sections of each simplified prospectus are substantially similar. Subsection 5.1(2) provides thata multiple SP shall be prepared in accordance with the applicable requirements of the SP Form.

These provisions are new and are necessary to permit the consolidation of separate simplified prospectuses in light of the clarificationthat a simplified prospectus pertains to only one mutual fund.

Section 5.3

Section 5.3 is new. Subsection 5.3(1) allows the separate binding of the Part B sections of a multiple SP from the Part A section ofthat document. Subsection 5.3(2) provides that if a Part B section of a multiple SP is bound separately from the Part A section ofthe document, all of the Part B sections of the document shall be bound separately from the Part A section. Subsection 5.3(2) alsoprovides that all or some of the Part B sections may be bound together with each other or separately.

As described above under the general changes made by the CSA, this section permits mutual fund organizations to structure theirsimplified prospectus to permit them to provide to an investor only fund-specific information about mutual funds in which the investorhas an interest. Section 5.3, together with section 5.1, gives mutual fund companies the flexibility to "package" their simplifiedprospectuses to better meet investors' information needs. The fund-specific information for each mutual fund could be providedseparately to an investor (along with the Part A section), or packages containing all or some of the fund-specific information aboutmutual funds could be combined.

Section 5.3 also requires the separation of all Part B sections from the Part A section of a simplified prospectus if any Part B sectionsare separated from the rest of the multiple SP; this has been done in order to eliminate excessive complexity from the proposedNational Instrument.

Section 5.4

Section 5.4 is new and provides that an annual information form shall be consolidated with one or more other annual informationforms into a multiple AIF if the related simplified prospectuses are consolidated into a multiple SP. The section provides that amultiple AIF shall be prepared in accordance with the applicable requirements of the AIF Form.

Part 6 of the 1998 Draft Instrument

Part 6 of the 1998 Draft Instrument, which contained the rules for the calculation of the management expense ratio of a mutual fund,has been deleted. Those provisions have been moved to proposed National Instrument 81-102 Mutual Funds(4) as they have generalapplication to mutual funds, not merely to mutual fund prospectuses.

Section 7.3

Section 7.3 is a transitional provision that provides that a mutual fund need not file a blacklined copy of a document prepared underthe proposed National Instrument that compares the document with a document prepared under NP36. The CSA recognize that sucha blacklining would have no utility, having regard to the significant changes proposed by the proposed SP Form, from the NP36simplified prospectus form.

Proposed SP Form

The order of items of the proposed SP Form has been changed in order to create separate Part A and Part B sections, withcorresponding changes in the numbering of the items.

General Instructions. The general instructions to the proposed SP Form have been amended extensively to reflect and describe thechanges made to permit "packaging", as described above.

Part A

Items 1, 2 and 3. These items prescribe requirements for the front cover, table of contents and introductory sections of the Part Asection of a simplified prospectus. They have been amended to provide separate instructions for a single SP, a multiple SP in whichthe Part A section and the Part B sections are bound together, and a multiple SP in which the Part A section is bound separately fromthe Part B sections.

The items are largely substantively unchanged from the 1998 Draft SP Form. However, a new requirement has been added in Item1.3, which requires that the front cover of a multiple SP in which the Part A section has been bound separately from the Part Bsections contain a statement advising investors of this fact and informing them that they must receive the additional fund-specificdisclosure document (that is, the Part B section disclosure for that mutual fund).

The suggested Introductory Disclosure proposed by Item 3 has been simplified from that contained in the 1998 Draft SP Form.

Item 5. Item 5 has been amended by the deletion of the suggested form of table that appeared in the 1998 Draft SP Form. The CSAhave deleted from the proposed SP Form and the proposed AIF Form a number of requirements concerning the form of tables orthe exact wording of required disclosure in order to allow mutual fund organizations the flexibility to provide the required disclosurein whatever form the organization considers most useful or appropriate. The deletion of the form of table from Item 5 of Part A isone example of this approach. The CSA are of the view that this information can be clearly presented by way of a diagram andaccordingly do not wish to limit mutual fund companies' creativity in presenting this information by proposing a tabular format.

In addition, Item 5 has been amended by the addition of subsection (4), which allows mutual fund organizations to include in the"Organization and Management" section of the simplified prospectus details on the manager of the mutual fund and any overallinvestment strategy or approach used by the manager in connection with the mutual funds managed by it. This change is beingproposed to permit factual and accurate disclosure about the mutual fund manager so as to give investors an idea about the"personality" of that manager, something the Nielsen Report suggests is important to investors.

Subsection (5) of Item 5 has also been amended. In the 1998 Draft SP Form, this subsection provided that if the information to beincluded in the table was not the same for all of the mutual funds to which the fund summary pertained, then the relevant informationwould be moved to the fund-specific sections of the fund summary. The proposed SP Form now provides that if the information isnot the same for substantially all of the mutual funds to which the multiple SP pertains, the information is to be moved to the Part Bsections of the multiple SP. The CSA have made this change to permit greater flexibility in the preparation of this section and outof recognition that clearer disclosure, and the elimination of excessive repetition, would be achieved if this type of information ispresented together, even if the disclosure is not identical for each mutual fund.

Item 6. The references to "transfers" contained in Item 14 of the 1998 Draft SP Form have been amended to refer to "switches", amore commonly used expression.

Item 8. Item 8 corresponds with Item 16 of the 1998 Draft SP Form.

The fees and expenses table and instructions in Item 8.1 have been amended to allow a mutual fund organization to include in thetable the separate management fees and operating expenses of each mutual fund to which a multiple SP pertains, even if thatinformation is different for each mutual fund. Under the 1998 Draft SP Form, any information concerning these matters that wasnot common to all of the mutual funds was required to be included in the fund-specific sections of the fund summary. This changeis being proposed in light of comments received to the effect that mutual fund investors might find a comprehensive table comparingthe management fees of all mutual funds of a particular mutual fund family of more assistance than having to "flip" between the fund-specific information to make these comparisons. Mutual fund organizations still have the option of providing this information solelyin the fund-specific disclosure, in which case, mutual funds would disclose that management fees are unique to each fund, as wasproposed in the 1998 Draft SP Form.

Instruction (3) has been added to Item 8.1 and requires more specific disclosure about the categories of expenses charged to mutualfunds under the term "operating expenses". The CSA see this disclosure as important to help an investor's understanding of the typesof fees and expenses he or she indirectly pays, by way of the mutual fund paying operating expenses.

Instruction (5) has been added to Item 8.1, and requires disclosure of arrangements concerning the payment of management feesdirectly by securityholders. This requirement was contained in Item 19.2 of the 1998 Draft AIF Form.

Item 8.2 requires illustration of the fees and expenses associated with different purchase options of a mutual fund. This Item hasbeen amended from the 1998 Draft SP Form to reduce the number of tables required to be provided from three to one table. Thischange simplifies the document, but continues to ensure that the most important disclosure concerning the fees associated withdifferent purchase options will continue to be provided under the one required table. The CSA propose this change in light of thegeneral comments received expressing concern about the potential length of the simplified prospectus and in order to cut down onnon-essential information.

Item 10. Item 10 has been amended by the inclusion of a requirement for a description of how the adjusted cost base of a securityof a mutual fund is calculated. This has been included for the benefit of taxable investors. In addition, Item 10 has been amendedby requiring disclosure, if applicable, of the income tax consequences to taxable investors of any arrangements in which managementfees are paid directly by investors.

Item 12. Item 12 has been added to Part A, and permits inclusion of any specific disclosure required or permitted to be made in aprospectus under securities legislation that is not otherwise required to be disclosed by the proposed SP Form. This Itemaccommodates provisions of securities legislation other than form requirements that allow or require specific disclosure in aprospectus. This Item is necessary in light of paragraph 4.1(e) of the proposed National Instrument, which prohibits the inclusionof any information, other than educational material, not specifically mandated or permitted by the proposed SP Form.

Item 12 was contained in the 1998 AIF Form as Item 26.

Item 13. Item 13 of Part A is new, and allows the inclusion in a multiple SP of a separate section that contains any explanatoryinformation that would otherwise be repeated identically in each Part B section of the document. This section has been included atthe suggestion of commenters in order to eliminate the need for repetition of identical disclosure in each Part B section of a multipleSP, thereby permitting those sections to be shorter and easier for an investor to read and understand. The CSA expect that thissection can be used, for example, to contain explanation of terms used in each Part B section of a multiple SP, such as "portfolioturnover rate" and "management expense ratio" and to contain discussion or explanations of the table or charts that are required tobe presented in each Part B section of the document.

Part B

Item 1. Item 1 is new and requires each page of a Part B section that is bound separately from the Part A section of a multiple SPto include a footer that states that the document provides specific information about the mutual fund; that the document should beread in conjunction with the rest of the simplified prospectus; and that the document and the general information document togetherconstitute the simplified prospectus. The type size for this footer must be consistent with the type size used in the rest of thedocument. The CSA have included this requirement to emphasize to investors the importance of reading both parts of a separately-bound simplified prospectus.

Item 2. This Item has been amended to specify particular heading requirements for a single SP and two types of multiple SP.

Item 3. This Item is new and corresponds to Item 13 of Part A of the proposed SP Form. The combination of this Item and Item 13of Part A of the proposed SP Form allows a mutual fund organization to choose whether to place explanatory information concerningPart B disclosure at the end of the Part A section or at the beginning of the Part B section of a multiple SP.

Item 4. Item 4 has been changed from Item 6.1 of the 1998 Draft SP Form to eliminate the suggested form of table. This changecorresponds to the deletion of a similar table from Item 4 of Part A of the proposed SP Form and is made for similar reasonsdescribed above.

Item 5. Item 5 has been changed from Item 6.2 of the 1998 Draft SP Form, again, to eliminate the suggested form of table.

Instruction (4) has been added to require disclosure if the rights attaching to the securities being offered are materially limited orqualified by those attached to another class or series of securities of the mutual fund. This Instruction was formerly Item 10 of the1998 Draft AIF Form.

Item 6. Item 6, which imposes the requirement to describe the fundamental investment objectives of a mutual fund, has beenchanged from Item 8 of the 1998 Draft SP Form in several ways. The CSA have made the changes having regard to the requirementsof paragraph 5.1(c) of proposed National Instrument 81-102(5), which will require securityholder approval for a change in thefundamental investment objectives of a mutual fund.

First, the term "investment objectives" has been changed to "fundamental investment objectives"; the CSA consider this term moredescriptive of the disclosure required by this Item.

Second, the CSA have added a requirement to disclose, under this Item, whether the mutual fund will be managed so that itssecurities will constitute foreign property under the Income Tax Act (Canada). The CSA are of the view that whether a mutual fund'ssecurities are or are not foreign property under the Income Tax Act is a crucial investment consideration for investors, and thecharacterization of this matter should not be changed without securityholder approval.

Third, the CSA have added subsection (2), which requires the disclosure of any restrictions on investments adopted by the mutualfund beyond what is required under securities legislation that pertain to the fundamental nature of the mutual fund.

Fourth, subsection (3) has also been added to require that a mutual fund that purports to guarantee or arrange for insurance in orderto protect all or some of the principal amount of an investment include that fact as a fundamental investment objective. Subsection(3) also requires disclosure of some of the details of the guaranteed or insurance arrangements, and is identical to the proposeddisclosure requirements for sales communications of guaranteed or insured mutual funds now proposed to be included in NationalInstrument 81-102 at subsection 15.4(10). Subsection (3) has been added to Item 6 to deal with the recent development ofguaranteed or insured mutual funds.

Finally, the CSA have moved Instruction (1) to Item 8 of the 1998 Draft SP Form to Item 7 of Part B of the proposed SP Form. Thisprovision requires disclosure of the type of securities in which the mutual fund may invest under normal market conditions. Thisdisclosure will complement the disclosure provided concerning the fundamental investment objectives of a mutual fund, but does notitself necessarily pertain to the "fundamental" objectives. The CSA have made this change so as to encourage full disclosure of theinvestment strategies and approaches of a mutual fund, without that disclosure forming part of the "fundamental investmentobjectives" of the mutual fund and thereby requiring securityholder approval in order to change. This change is proposed in responseto comments received.

Item 7. Item 7 requires disclosure of the investment strategies of a mutual fund that will be followed in order for the mutual fund toseek to achieve its "fundamental investment objectives". The Item is substantially unchanged from Item 9 of the 1998 Draft SP Form,except for the addition of the requirement to disclose the type of securities in which the mutual fund invests under normal marketconditions, as described above, and by the addition of subsection (6), which requires disclosure of any restrictions on investmentsadopted by the mutual fund beyond what is required under securities legislation that do not pertain to the fundamental nature of themutual fund. In addition, subsection (3) has been amended for mutual funds using derivatives to require disclosure of the types ofderivatives expected to be used and a brief description of the nature of each type.

Item 8. Item 8 is new, and requires disclosure of the ten largest holdings of the mutual fund, by percentage of net assets of themutual fund, as at the end of the last financial year. The CSA have added this requirement as they believe that it is a helpful pieceof disclosure for investors that can be easily added to a simplified prospectus without significant difficulty for mutual fundorganizations. This information can be used by investors to determine the fundamental nature of a mutual fund. The CSA note thatthis information is routinely provided by many mutual fund organizations in reports to securityholders.

Item 9. Item 9, which pertains to risk disclosure, is substantially unchanged from Item 10 of the 1998 Draft SP Form. Subsection(4) has been moved from Item 10 of the 1998 Draft AIF Form and added to the Item. This subsection requires disclosure of risksassociated with other classes or series of securities of the mutual fund.

Item 10. Item 10 pertains to suitability disclosure and replaces Item 7 of the 1998 Draft SP Form. It is substantively unchanged buthas been moved so that "Suitability" disclosure is now required to be provided immediately after the "Risks" disclosure in Part B ofa simplified prospectus, rather than immediately after the introductory tables.

Item 11. Item 11 replaces Item 11 of the 1998 Draft SP Form, and sets out the requirements for disclosure of the past performanceof the mutual fund. The disclosure required to be made under this Item is substantially the same as under the 1998 Draft SP Form.The CSA have modified and clarified some requirements.

First, a new Item 11.1 has been added. This Item consolidates a number of requirements that pertain to each of the bar chart, linegraph and table required to be provided under Item 11. These requirements were previously contained throughout Item 11 of the 1998Draft SP Form.

Second, subsection (2) of Item 11.3 now imposes a requirement that the line graph required by Item 11.3 show graphically the valuesof the hypothetical investment required to be shown at least quarterly throughout the periods shown. The CSA want to ensure thatthe line graph is detailed enough to show the varying performance of a mutual fund throughout different parts of the periods shown.The Item has been generally revised to clarify the information that is required to be provided in dollar amounts and in graphic form.

Third, the suggested form of table under Item 11.4 has been deleted, to provide additional flexibility to mutual fund organizations inproviding annual compound return disclosure.

Item 13. Item 13 contains the requirements for presentation of the financial highlights of the mutual fund. Some changes have beenmade to the Item from Item 13 of the 1998 Draft SP Form.

In particular, the CSA are now proposing that financial highlights be presented in two, rather than four, tables in order to simplify thepresentation. In addition, disclosure of unit or share value at the beginning of a period, management fee rate and operating fee rateare no longer required to be provided. These items are components of disclosure items that are required to be provided, and the CSAhave elected to delete those requirements in order to simplify the tables. The CSA note that full financial statements are availableon request for investors seeking more complete information.

The CSA note that the addition of Item 14 of Part A and Item 3 of Part B of the proposed SP Form will also enable mutual fundorganizations to simplify the presentation of the financial highlights. These items will enable the organization to move introductoryinformation, footnote disclosure and explanation of terms to one section of the simplified prospectus, so that disclosure need not berepeated in each Part B section of a multiple SP. The use of this approach may be especially helpful for financial highlightpresentation.

Instruction (2) to Item 13.1 requires management expense ratios to be calculated using Part 16 of proposed National Instrument 81-102. Although this is not a change from the 1998 Draft SP Form, the CSA are proposing changes to the methodology to be followedby mutual funds in calculating management expense ratios.(6)

Item 13.2 is new. Item 13.2 requires disclosure of the approximate percentage of the management expense ratio that was appliedto payment by the mutual fund manager of sales incentives and distribution expenses to registered dealers in connection with thedistribution of securities of the mutual fund during the last completed financial year of the mutual fund.

The CSA are proposing this requirement as part of their general efforts in the proposed SP Form to ensure that investors receive cleardisclosure about the fees and expenses borne by investors, directly and indirectly, in investing in mutual funds. The CSA considerit important that investors understand that a portion of the management fees paid by a mutual fund are used to pay for the promotionof the mutual fund, rather than for the management and administration of the mutual fund.

The CSA have also added Item 13.3 to Part B of the proposed SP Form. This Item will require disclosure of the dollar value of theshare of the expenses of the mutual fund indirectly borne by investors, based on a $1,000 hypothetical investment and assuming themanagement expense ratio from the most recent year. The CSA consider this disclosure important, as a complement to the feesand expenses disclosure required by Item 8 of Part A of the proposed SP Form, to enable investors to understand the actual coststo them of investing in mutual funds.

Proposed AIF Form

General Instructions. The General Instructions to the proposed AIF Form have been changed from the General Instructions to the1998 Draft AIF Form in several ways to reflect the CSA's decision to permit additional flexibility in the creation of annual informationforms and to reflect a different approach to the annual information form than was contemplated for a fund prospectus in the 1998Draft AIF Form.

The CSA are no longer requiring an annual information form to be a complete, free-standing document that will contain all of theinformation that is contained in the corresponding simplified prospectus. Therefore, the proposed AIF Form generally contains norequirements that information contained in the related simplified prospectus be repeated in the annual information form. Subsection(4) to the General Instructions notes that the purpose of an annual information form is generally to address different issues than areaddressed in the related simplified prospectus.

In connection with that change of approach, the items contained throughout the 1998 Draft AIF Form that required the disclosure inthe annual information form of matters described in the related simplified prospectus have been deleted.

Subsection (9) of the General Instructions now provides that a multiple AIF need not provide fund-specific information on a catalogue-basis, and permits disclosure of the required Items in any order in an annual information form.

Subsections (10) through (14) of the General Instructions are new, and describe the rules applicable to the consolidation of annualinformation forms. The General Instructions note that, unlike the rule applicable to a multiple SP, the proposed National Instrumentdoes not permit parts of a multiple AIF to be bound separately.

Item 1. As with some of the Items in the proposed SP Form, Item 1 has been divided into two parts to clarify the disclosurerequirements for a single AIF and a multiple AIF.

Item 4. Item 4 pertains to disclosure of investment objectives and strategies. This Item has been changed by the deletion ofsubsection (4), which has been moved to Items 6 and 7 of Part B of the proposed SP Form, as described above.

Item 9. As in the proposed SP Form, references to "transfers" in Item 9 (Item 12 in the 1998 Draft AIF Form) have been changedto references to "switches".

Item 10 of Draft AIF Form. This Item has been moved to Instruction (4) of Item 5 of Part B of the proposed SP Form.

Item 10. Item 10.4 (Item 16.4 in the 1998 Draft AIF Form), which pertains to disclosure of brokerage arrangements, has beenchanged by the addition of subsection (2). Subsection (2) requires disclosure of the name of any person or company that provides"investment decision-making services" to the manager or a portfolio adviser of a mutual fund that were paid for through commissionsor brokerage transactions.

These disclosure requirements relate to so-called "soft-dollar transactions" and are based on the disclosure requirement of OSCPolicy Statement 1.9. The CSA consider it useful to require this disclosure while the CSA conducts a more thorough review of theapproach to be taken in respect of OSC Policy Statement 1.9 and the use of "soft dollars" generally.

Item 10.6 (Item 16.6 in the 1998 Draft AIF Form) contains disclosure requirements concerning the directors, officers and trusteesof a mutual fund, and has been changed to reflect mutual funds structured as partnerships.

Item 11. Item 11 (Item 17 in the 1998 Draft AIF Form) pertains to conflicts of interest, and has been changed to reflect entitiesstructured as partnerships.

Item 12. Item 12 (Item 18 in the 1998 Draft AIF Form), which pertains to disclosure of fund governance arrangements, has beenamended by the addition of the requirements relating to disclosure of derivatives risk management that were formerly contained inItem 6 of the 1998 Draft AIF Form under "Risks". The CSA consider these issues to be more fund management/governance issuesthan risk disclosure issues.

Item 16. Item 16 (Item 24 in the 1998 Draft AIF Form), which pertains to disclosure of material contracts, clarifies the nature of thecontracts required to be listed in the annual information form.

Proposed Companion Policy

Section 2.3

Section 2.3 has been changed to reflect the new purpose of the annual information form, which is to provide disclosure aboutinformation on different matters than those discussed in the related simplified prospectus.

Section 4.1

Section 4.1 has been amended to provide commentary on the multiple SP approach adopted by the proposed National Instrumentand the proposed SP Form. Section 4.1 describes the approach and the ability of mutual fund organizations to "package" the fund-specific sections of a multiple SP.

In addition, subsection 4.1(3) comments on the meaning of the term "substantially similar" in the context of the rules concerning theconsolidation of one or more simplified prospectuses.

Subsection 4.1(7) notes that the proposed National Instrument contains no restrictions on how many simplified prospectuses canbe consolidated into a multiple SP.

Section 5.4

Section 5.4 has been changed to discuss the relaxation of the rules concerning the inclusion of educational material in a simplifiedprospectus.

Section 6.3

Section 6.3 is new and discusses the consolidation of one or more annual information forms into a multiple AIF. The section notesthat the proposed National Instrument does not prevent the consolidation of annual information forms even if the related simplifiedprospectuses are not consolidated.

Section 7.2

Section 7.2 is new and notes that the delivery of a simplified prospectus by a mutual fund under section 3.3 of the proposed NationalInstrument in response to a request is not a breach of the registration requirements of securities legislation. This clarification is madein response to comments received questioning the ability of mutual fund companies to comply with the section 3.3 of the proposedNational Instrument if they were not registered as a dealer.

Section 7.3

Section 7.3 is new. Subsection 7.3(1) provides a reminder to mutual fund organizations that the requirements of securities legislationto deliver a simplified prospectus will be satisfied only by the delivery of both the Part A section and the Part B section of a simplifiedprospectus.

Subsection 7.3(2) notes that there is no prohibition against the same Part B section of a multiple SP being bound by itself fordistribution to some investors, but also being bound with the Part B sections of other mutual funds for distribution to other investors.

Section 8.1

Section 8.1 is new and contains a recommendation from the CSA that the portfolio advisers of a mutual fund prepare and review thedisclosure contained in a simplified prospectus concerning investment matters.

Authority for Proposed National Instrument - Ontario

In those jurisdictions in which the proposed National Instrument and Forms are to be adopted as a rule or regulation, the securitieslegislation in each of those jurisdictions provides the securities regulatory authority with rule-making or regulation-making authorityin respect of the subject matter of the proposed National Instrument and Forms.

In Ontario, the following sections of the Securities Act (Ontario) (the "Ontario Act") provide the OSC with authority to make theproposed National Instrument and the Forms.

Paragraph 143(1)16 of the Ontario Act authorizes the OSC to make rules varying the application of the Ontario Act to establishprocedures for or requirements in respect of the preparation and filing of preliminary prospectuses and prospectuses, includingrequirements in respect of distribution of securities by means of a prospectus incorporating other documents by reference andrequirements in respect of distribution of securities by means of a simplified prospectus.

Paragraph 143(1)31 of the Ontario Act authorizes the OSC to make rules regulating mutual funds and the distribution of the securitiesof the funds, including varying the application of Part XV (Prospectuses - Distribution) or XVIII (Continuous Disclosure) of the OntarioAct by prescribing additional disclosure requirements in respect of the fund and requiring or permitting the use of particular formsor types of additional offering or other documents in connection with the funds.

Paragraph 143(1)39 of the Ontario Act authorizes the OSC to make rules requiring or respecting the media, format, preparation, form,content, execution, certification, dissemination and other use, filing and review of all documents required under or governed by theOntario Act, the regulations or the rules and all documents determined by the regulations or rules to be ancillary to the documents,including preliminary prospectuses and prospectuses.

Alternatives Considered

The alternatives to the proposed National Instrument and the proposed mutual fund prospectus regime considered by the CSA arediscussed in the 1998 Notice. Other than to consider the recommendations made that relate to mutual fund disclosure containedin the Reports described above in this Notice and to consider the comments received on the 1998 draft documents, the CSA did notconsider any other alternatives.

Unpublished Materials

In proposing the National Instrument, Forms and Companion Policy, the CSA have not relied on any significant unpublished study,report, decision or other written materials.

Anticipated Costs and Benefits

The proposed National Instrument, Forms and Companion Policy promote mutual fund disclosure documents that effectivelycommunicate essential information to investors. The CSA have focused the disclosure items required in a simplified prospectus andannual information form on information that will help investors make informed investment decisions. The information to be includedin a simplified prospectus and annual information form will be organized in an efficient, clear, concise and standardized manner,which will increase the effectiveness of the information. Investors will be able to use simplified prospectuses in a more efficient andeffective manner to compare one mutual fund to another. The simplified prospectus is expected to better equip investors to makeinformed investment decisions, since they will have access to clearer and more relevant information.

The CSA do not believe that the disclosure system outlined in the proposed documents will result in a significant cost increase toindustry participants over time because the proposed National Instrument and the Forms do not require that mutual funds disclosea significant amount of new information or prepare an additional number of disclosure documents than are required presently. Ratherthan increase the disclosure and filing burden, the proposed National Instrument and Forms primarily re-order disclosure items, clarifythe formatting and presentation of information and require new formats for certain information.

The initial expense that will likely be experienced by fund companies in having to prepare new disclosure documents to comply withthe proposed National Instrument and Forms is expected to be offset by future savings such as lower printing and distribution costsfrom a shorter simplified prospectus and no longer having to give each investor the financial statements of the funds at the time oftrade. In addition, the use of the proposed "packaging" approach may result in savings for mutual fund organizations as they willbe able to reduce the amount of materials that they are required to provide to investors.

The CSA have imposed no limits on the number of mutual funds that may be consolidated into one simplified prospectus. However,the CSA acknowledge that, unless fund companies decide to take advantage of the increased flexibility to "package" information,one result of the proposed National Instrument and the Forms is that fund companies may decide that a simplified prospectus willbe more effective as a disclosure document if less mutual funds are covered in it. In particular those fund companies with in excessof thirty funds in their fund families may decide that one simplified prospectus covering all funds would be too unwieldy and wouldnot meet the stated goals of the disclosure system proposed by the CSA. Those fund companies will experience increased costsin producing more than one simplified prospectus. On the other hand, the proposed National Instrument permits the "packaging"of information; this should significantly reduce the costs to those fund companies that avail themselves of this flexibility.

Distributors of mutual funds may experience increased costs in having to ensure that sales representatives have the proper simplifiedprospectuses on hand for their clients, particularly for those fund companies that decide to utilize a "packaged" concept for their funds,with physically separate Part B sections for each mutual fund.

The CSA believe these increased costs will be outweighed by the benefits to investors in having more manageable and relevantdisclosure documents.

The costs to the industry in having to learn plain language principles in order to write fund disclosure documents in plain languageand to follow presentation standards are unquantifiable, but, in the view of the CSA, are more than offset by the benefits to investorsin receiving better-written disclosure documents.

On balance, the CSA are of the view that the benefits to investors, and also for the mutual fund industry, expected by the proposedNational Instrument and Forms will outweigh any costs to industry participants.

Regulations to be Amended or Revoked - Ontario

The implementation of the proposed National Instrument, Forms and Companion Policy will not require the amendment or revocationof any Regulation, except that the OSC may revoke section 54 of the Regulation if the proposed National Instrument comes into forcebefore Rule 41-501 General Prospectus Requirements. Otherwise, section 54 will be repealed with other sections of the Regulationwhen Rule 41-501 comes into force.

Related Instruments

The proposed Companion Policy is related to the proposed National Instrument and Forms.

Comments

Interested parties are invited to make written submissions with respect to the proposed changes to the proposed National Instrument,Forms and Companion Policy. Submissions received by July 5, 1999 will be considered.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the OSC, in duplicate, asindicated below:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland
Registrar of Securities, Northwest Territories
Registrar of Securities, Yukon Territory
Registrar of Securities, Nunavut Territory

c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
E-mail: diggers@osc.gov.on.ca

Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:

Claude St. Pierre, Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 22nd Floor
Montréal, Québec H4Z 1G3
E-mail: claude.stpierre@cvmq.com

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securitieslegislation in certain provinces requires that a summary of written comments received during the comment period be published,confidentiality of submissions cannot be maintained.

Comments may also be sent via e-mail to the above noted e-mail addresses of the respective Secretaries of the Ontario Commissionand to the Commission des valeurs mobilières du Québec, and also to any of the individuals noted below at their respective e-mailaddresses.

Questions may be referred to any of:

Robert Hudson

Manager and Senior Legal Counsel

British Columbia Securities Commission

(604) 899-6691

or (800) 373-6393 (in B.C.)

E-mail: rhudson@bcsc.bc.ca

Noreen Bent
Senior Legal Counsel
British Columbia Securities Commission
(604) 899-6741
or (800) 373-6393 (in B.C.)
E-mail: nbent@bcsc.bc.ca

Wayne Alford
Legal Counsel
Alberta Securities Commission
(403) 297-2092
E-mail: wayne.alford@seccom.ab.ca

Dean Murrison
Deputy Director, Legal
Saskatchewan Securities Commission
(306) 787-5879
E-mail: dean.murrison.ssc@govmail.gov.sk.ca

Bob Bouchard
Director, Corporate Finance
The Manitoba Securities Commission
(204) 945-2555
E-mail: bbouchard@cca.gov.mb.ca

Rebecca Cowdery
Manager, Investment Funds
Capital Markets
Ontario Securities Commission
(416) 593-8129
E-mail: rcowdery@osc.gov.on.ca

Anne Ramsay
Accountant, Investment Funds
Capital Markets
Ontario Securities Commission
(416) 593-8243
E-mail: aramsay@osc.gov.on.ca

Pierre Martin
Legal Counsel, Service de la réglementation
Commission des valeurs mobilières du Québec
(514) 940-2199, ext. 4557
E-mail: pierre.martin@cvmq.com

Text of Proposed National Instrument, Forms and Companion Policy

The text of the proposed National Instrument, Forms and Companion Policy follow, together with footnotes that are not part of theproposed National Instrument, Forms or Companion Policy, but have been included to provide background and explanation.

DATED: April 30, 1999.

APPENDIX A
LIST OF COMMENTERS ON
PROPOSED NI 81-101 MUTUAL FUND PROSPECTUS DISCLOSURE
AND
PROPOSED COMPANION POLICY 81-101CP
MUTUAL FUND PROSPECTUS DISCLOSURE
PUBLISHED FOR COMMENT JULY 1998

1. AGF Management Limited

2. Angus Reid Group (report on consumer research conducted for the OSC)

3. BellCharts Inc.

4. Canadian Bankers Association

5. Fidelity Investments Canada Limited

6. Fiducie Desjardins

7. Investors Group Inc.

8. Joe Killoran

9. Mackenzie Financial Corporation (2 submissions)

10. Plain Language & Design

11. Spectrum United Mutual Funds Inc.

12. TD Asset Management Inc.

13. The Investment Funds Institute of Canada (submission includes the research report completed for IFIC by ACNielsen.DJC Research)

 

APPENDIX B

 

 

SUMMARY OF COMMENTS RECEIVED ON
PROPOSED NATIONAL INSTRUMENT 81-101
MUTUAL FUND PROSPECTUS DISCLOSURE
AND
PROPOSED COMPANION POLICY 81-101CP
MUTUAL FUND PROSPECTUS DISCLOSURE
AND
RESPONSE OF THE CANADIAN SECURITIES ADMINISTRATORS

1. INTRODUCTION

In July 1998, the Canadian Securities Administrators (the "CSA") released for public comment proposed National Instrument 81-101Mutual Fund Prospectus Disclosure (the "1998 Draft NI"), Form 81-101F1 (the "1998 Draft SP Form"), Form 81-101F2 (the "1998Draft AIF Form")(collectively, the "1998 Draft Forms") and proposed Companion Policy 81-101CP (the "1998 Draft CP"). During thecomment period, which ended on October 30, 1998, the CSA received 14 submissions from 13 commenters. The commenters canbe grouped as follows:

Mutual fund management companies: 7

Trade Associations: 2

Individuals: 1

Other: 3

TOTAL: 13

The trade associations listed each made submissions on behalf of their respective members. The comment letter submitted by TheInvestment Funds Institute of Canada ("IFIC") contained comments on specific items and was accompanied by a copy of the NielsenReport (which is described below).

Copies of the comment letters, including the Nielsen Report, may be viewed at the office of Micromedia, 20 Victoria Street, Toronto,Ontario (416) 312-5211 or (800) 387-2689; the office of the British Columbia Securities Commission, 200-865 Hornby Street,Vancouver, British Columbia (604) 899-6660; the office of the Alberta Securities Commission, 10025 Jasper Avenue, Edmonton,Alberta (403) 427-5201; and the office of the Commission des valeurs mobilières du Québec, Stock Exchange Tower, 800 VictoriaSquare, 22nd Floor, Montréal, Québec (514) 940-2150.

The CSA have considered the comments and thank all commenters. The nature and extent of the comments received indicates thecare and thought given by industry participants to the issues addressed in the 1998 Draft NI, 1998 Draft Forms and the 1998 DraftCP. The CSA considered the comments very helpful in their further development of the proposed National Instrument, Forms andthe proposed Companion Policy.

Many of the commenters provided detailed comments on specific sections of the 1998 Draft NI, 1998 Draft Forms and the 1998 DraftCP. This Appendix B to the Notice of Proposed Changes is a summary of the substantive general comments received, together withthe CSA's responses and, where applicable, the changes adopted by the CSA. A tabular, rather than narrative, summary of thespecific section by section comments is provided following the summary of the general comments received.

2. CONSUMER INPUT

Along with publishing the 1998 draft documents for general public comments, the CSA sought specific consumer input into theirproposals. As described in the Notice published in July 1998 along with the 1998 draft documents (the "1998 Notice"), the CSAconsider it important to receive feedback from investors on their disclosure proposals. The CSA worked with IFIC and six mutual fundcompanies to "test market" the fund summary concept proposed in the 1998 Draft NI. Mackenzie Financial Corporation, TrimarkInvestment Management Inc., Global Strategy Financial Inc., Investors Group Inc., CentrePost Mutual Funds and TD AssetManagement Inc. prepared fund summaries that complied with the 1998 Draft NI and the 1998 Draft SP Form for certain of theirfunds. IFIC engaged AC Nielsen.DJC Research ("AC Nielsen") to carry out a comprehensive research program, using the fundsummaries prepared by the above mutual fund companies. The research program was designed to assess whether the proposeddisclosure concept met the needs of investors and offered improvements over current disclosure requirements. The report of ACNielsen (the "Nielsen Report") forms part of the comment letter of IFIC submitted to the CSA in response to the CSA's request forcomments.

AC Nielsen conducted both quantitative and qualitative research on the effectiveness of the fund summary proposed by the 1998 DraftNI. The research was conducted by way of:

Triadic interviews; small group discussions with an AC Nielsen employed research facilitator and three individualinvestors. AC Nielsen used the triadic interview technique in order to determine if the fund summary omittedimportant content and if the material was written so that it is easy to understand. Triadic interviews were held inToronto, Regina and Montreal in August and September 1998. 38 investors were involved in 15 sessions. Thesessions were arranged to reflect a wide spectrum of types of investors, over a broad geographic area. The triadicinterviews were used to obtain qualitative research feedback directly from investors, although the results cannotbe taken as representative of the average Canadian investor.

Two-phased telephone survey; 811 investors participated in the first phase of the survey and 400 of those 811investors participated in the second phase of the survey. The survey was conducted to gauge investor reactionto the fund summary and to compare it to the simplified prospectus prepared according to National PolicyStatement No. 36 ("NP36"). Investors were recruited from a list of names provided by the six volunteer fundcompanies and from lists of names maintained by AC Nielsen; these latter investors were chosen to represent asample of investors from the general Canadian population. The first phase of the survey was used to gatherdemographic information and other data related to the investors' financial practices. Following the first phase, eachparticipant received a fund summary, the simplified prospectus and financial statements covering the same fundsas were covered in the fund summary and a background explanatory letter. The second phase involved telephoneinterviews with those participants in the first phase who agreed to review the material and answer questions. ACNielsen indicates that survey results based on 811 interviews are accurate within a range of plus or minus 3.5%and for 400 surveys, plus or minus 4.9%, 19 times out of 20. AC Nielsen reports that a survey of the magnitudeconducted in the telephone surveys is reflective of the views of the average Canadian investor.

AC Nielsen's conclusions included:

The fund summary proposed by the 1998 Draft NI and the 1998 Draft SP Form was the preferred form over thesimplified prospectus prepared under NP36. However, lower-knowledge investors often chose the simplifiedprospectus over the fund summary since it contained fewer financial details, which they found confusing.

Investors most often chose the fund summary due to the fact they believed it contained information presented ina simple way or in an appealing style.

Investors agreed that at least some information could be deleted from the fund summary, although there was nooverwhelming agreement about which item could be deleted.

Investors indicated that the length of the fund summary could be an issue, as a majority of investors reported adiminished interest in reading the fund summary if it became a lengthy document.

The fund summary received high ratings for "the language used making things easy to understand" and the"organization of document makes things easy to find".

The fund summary appeared to deliver much of what investors consider to be essential information, with pastperformance and impact of fee disclosure being considered as two of the most important new pieces of information.

Although "medium and high savvy investors" reported few difficulties in understanding the document, "lowerknowledge investors" reported some challenges in understanding fund distributions, portfolio turnover rate and fundexpenses. The lower knowledge investors wanted information about fees.

Investors strongly endorsed standardization of fund summaries.

Investors did not like to see repetition of information within the same document (that is, the individual fund-specificinformation was seen to contain too much repetition).

The financial highlights sections overwhelmed some "lower knowledge" investors and other investors whounderstood this section felt that some of the financial details could be removed.

The fund summary must contain educational information to be the most useful for investors. Lower knowledgeinvestors often preferred the simplified prospectus over the fund summary for the same mutual funds, since thesimplified prospectus contained more educational information.

In addition to encouraging the consumer research carried out on behalf of IFIC, the Ontario Securities Commission (the "OSC")engaged Angus Reid Group, Inc. ("Angus Reid Group") to conduct a series of focus groups with mutual fund investors. Three focusgroups were held in October 1998. The groups were comprised of individuals belonging to the following three organizations invitedby the OSC to recruit their members to participate:

Canadian Shareowners Association

Canadian Association of Retired Persons

Canadian Consumers' Association.

Angus Reid Group reported to the OSC on the discussions held during the focus groups. All participants received a copy of the 1998Notice, in advance of the date for the focus groups. Angus Reid Group cautions that their research is qualitative and their findingsare strictly directional in nature. It cannot be assumed that either the participants in the focus groups or their opinions arerepresentative of the general population of mutual fund securityholders.

Angus Reid Group summarized their findings as follows:

The new fund disclosure system received very positive feedback, both in terms of the type of information providedand the format in which it is presented.

Prospectuses are not viewed as decision-making tools -- most participants in the focus groups said they did noteven read such documents, instead relying on their advisers.

Current simplified prospectuses are considered not to be written for the average investor. The new prospectusdisclosure system should take into account "clarity, comparability and communication" and the amount ofinformation provided. Brevity is a key criterion.

Investors should be provided with an "at-a-glance" type of document. This document could serve either as anindependent stand-alone point of sale document or could be contained within the fund summary itself. It shouldcontain information that is truly the most relevant in terms of making an investment decision.

Historical performance of a mutual fund is the most sought-after information. Most investors get such informationeither from advisers or from the business sections of the financial press. Some participants indicated that "baldperformance is useless" and that a comparison such as a benchmark or fund peer group performance is necessary.

Participants in the focus groups were dissatisfied with the current fund disclosure documents. The most commoncomplaint was the amount of information and the "complicated format" in which it is presented.

Standardized presentation is seen as important. It allows investors to get a fully accurate portrayal of a mutualfund in relation to others.

The fund prospectus proposed by the 1998 Draft NI and the 1998 AIF Form was seen as potentially providing anoverwhelming amount of detail. Very few participants said they would ask for one, although they would, however,expect their adviser to have read it.

Names of disclosure documents containing the words "summary" or "prospectus" were seen as understandable.

The CSA have responded to the comments made in both consumer reports by:

reducing the potential for repetitious information in a simplified prospectus;

better articulating the purpose of the annual information form and changing its focus from a "complete disclosuredocument" to one that supplements the information provided in a simplified prospectus;

reducing or simplifying, where appropriate, the items of disclosure to be provided in a simplified prospectus, so asto seek to achieve the goal for the simplified prospectus of providing essential information for informed decisionmaking;

maintaining the central underlying principles and the two document system proposed by the 1998 Draft NI;

giving fund managers more flexibility to "package" the information provided about different mutual funds in orderto ensure investors receive the most relevant information for their mutual fund investment;

reviewing each item of disclosure proposed by the 1998 Draft Forms to test their importance and necessity todetermine where brevity could be improved;

maintaining the importance for ease of comparability of information about different mutual funds;

improving the fee disclosure to be provided by mutual funds in simplified prospectuses and ensuring that thisdisclosure is understandable and relevant to investors; and

simplifying the financial details about a mutual fund, while still maintaining the most important information forinvestors.

One commenter conducted an informal survey of mutual fund dealers asking them whether they believed the proposed fund summarywould better serve them in advising their clients. The commenter asked for specific comment from dealers on specific disclosureitems and received 20 responses. The commenter noted that some of the questions it asked were "slanted" toward the responsesit wished to receive, however notes that certain of the answers received differed from the desired responses. The commenterindicated the conclusions it drew from the survey were:

most respondees did not favour a bar chart format for an annual compound return table;

most respondees favoured retaining portfolio turnover rate disclosure, since it would help identify funds that werelikely to produce annual distributions and therefore would be more suitable for non taxable investors;

the respondees did not feel the fees tables needed amendment;

the respondees did not feel the length of the sample fund summary provided by the commenter was too long (itwas 32 pages in length and covered a limited number of funds of one fund family);

all respondees liked the fund-specific catalogue approach;

respondees wished to see Top Ten Holdings disclosure in fund summaries;

respondees wished to have more information about portfolio managers;

respondees did not wish fund summaries to contain "rolling time period performance" tables; and

changes in portfolio managers should be disclosed by way of footnote to the performance tables.

Notwithstanding the very informal nature of the survey conducted, the CSA have reviewed the comments made. In certain areas,the CSA agree with the disclosure changes and have made changes.

3. GENERAL COMMENTS

Many of the comments received were in respect of specific disclosure items, particularly those disclosure items to be presented ina fund summary. However, commenters also provided some general comments. This part of the Summary of Comments discussesthese general comments.

Support for the Proposed Disclosure System

IFIC indicated its support for a two document disclosure system as proposed by the CSA; however, it expressed concern over thelength of the fund summary and the redundancy of some of the required disclosure. IFIC was also supportive of the CSA's proposedrule that fund summaries be written in plain language and in a format that enhances ease of readership and facilitates comparisonsbetween funds.

Other commenters also supported the proposed disclosure system, many expressing their approval of the "catalogue" presentationrequired for fund-specific information and its separation from the generic non-fund-specific information applicable to all the funds ina fund family. These commenters often stated their opinion that fund summaries prepared as required by the 1998 Draft NI and the1998 Draft SP Form would be of value to potential mutual fund investors.

Commenters expressed concern about the fund prospectus required by the 1998 Draft AIF Form. They noted that the concept of a"complete disclosure document" was probably unnecessary and that most fund companies would merely repeat the disclosure in thefund prospectus from the fund summary. Comments were received urging the CSA to revise the fund prospectus to make it a formof "statement of additional information". As described in the Notice of Proposed Changes, the CSA are proposing this fundamentalshift in views about the utility of the annual information form.

IFIC indicated its support for the use of the term "fund summary" and noted that most investors "innately" dislike the word"prospectus". IFIC also commented on the French translation by the Commission des valeurs mobilières du Québec (the "CVMQ")of the terms "fund summary" and "fund prospectus". The CSA are proposing that the fund prospectus disclosure documents retainthe same names as used in NP36 for the reasons identified earlier in the Notice of Proposed Changes. The CVMQ will ensure thatthe French translations for such terms will be accurate translations.

The Canadian Bankers Association (the "CBA") urged the CVMQ to adopt the proposed mutual fund disclosure system in the formonce adopted by the CSA. As noted in the Notice of Proposed Changes, the CVMQ is reviewing how it can integrate the proposedNational Instrument with its existing securities legislation.

Maintain the Existing Prospectus Disclosure System or Adopt Another Approach

Two commenters indicated that they did not support the proposed prospectus disclosure system.

The CBA agreed that the current disclosure system is not adequate or efficient. However, the CBA recommended adopting a threedocument system comprised of (i) an industry generic investor education document, (ii) a concise point of sale disclosure documentthat was anticipated to be one to two pages, and (iii) a long form disclosure document, including financial statements, that would beprovided to an investor upon request.

Another commenter suggested that the fund summary/fund prospectus system published for comment in July 1998 be abandonedand that efforts be focussed on fine tuning the existing system. The commenter suggested that it would be better to eliminate whatis unnecessary from the current documents, permit the use of performance data and enhance the flexibility for fund companies toproduce documents tailored to suit their particular products. The commenter noted that "it is a mistake to introduce rules and formsthat eliminate, or severely restrict flexibility". This commenter also urged the CSA to adopt a disclosure system similar to the USsystem of prospectus disclosure, whereby a complete prospectus is delivered to investors (although a short "profile" prospectus canbe used to sell funds) and prospectus amendments can be made, not through formal separate amending documents, but through"stickering" the existing disclosure documents.

Other commenters, although in support of the proposed mutual fund prospectus disclosure system, suggested that the CSA permitfund companies to amend particular fields of information in fund summaries that are time-sensitive (for example, performance dataand management expense ratios) without having to file formal amendment documents or restatements. The CSA have made nochanges in regard to these comments. The proposed NI does not change the general requirements under securities legislation toamend prospectuses in the event of a material change to the mutual fund. Proposed National Instrument 81-102 Mutual Fundsimposes specific obligations on mutual funds concerning "significant changes" and prospectus amendments.

Another commenter suggested that the CSA require a specific point of sale document and "switch" point of sale document to becompleted by mutual fund distributors, whereby certain specific information would be provided to investors. Investors would be askedto sign this document to acknowledge the information provided in the point of sale document. The commenter also expresseddismay that securities legislation requires delivery of fund prospectuses, not in advance of a sale, but "several days after a sale hasbeen consummated". The CSA are of the view that, at present, the proposed NI represents the most appropriate prospectusdisclosure regime and have made no changes in this regard. The CSA are not proposing at this time to recommend amendmentsto the provincial securities legislation that requires delivery of the prospectus within two business days of a trade and gives investorsrescission rights exercisable within specified time limits after receipt of the prospectus.

The CSA have considered the comments relating to the structure of the disclosure system and, as discussed earlier in this Summaryof Comments and in the Notice of Proposed Changes, have decided to retain the basic premise of the simplified prospectus systemset out in NP36, with the improvements indicated. Many of these improvements take into account the following additional generalcomments.

Length of Fund Summary

Many commenters expressed concern that the goal of the CSA in proposing a fund summary (a "short, concise document containingessential information") would not be achievable and that fund summaries would be unwieldy lengthy documents, particularly whena fund company included disclosure about all of its mutual funds in one document. These same commenters often expressedconcern about the degree of repetition that would be provided in each fund-specific information section. One commenter noted thatrepetitive sections in a document cause investors to "skim" the information without reading it, believing that it is the same information.Other commenters noted that the fund summary still contained too much information that could be included in an industry genericeducational document and suggested this disclosure be deleted. Many commenters expressed views that the fund-specific pagesof the fund summary should be no longer than two pages per fund. These commenters noted that the requirements of the 1998 DraftSP Form would result in the fund-specific pages of the fund summary being at least four pages per fund.

IFIC provided the CSA with a copy of a "Key Features" document required by the mutual fund regulators in the United Kingdom. IFICnotes that this document is a true "summary" document and is the equivalent to the CSA's proposed fund summary. IFIC notes thateach fund-specific disclosure piece is less than one page in length in the UK "Key Features" document.

The CSA have considered these comments and, as noted above, have reviewed all disclosure items carefully and have either deletedor simplified certain items with a view to reducing the length of simplified prospectuses. The "packaging" proposals of the CSA willalso allow mutual fund companies to ensure investors are provided with only that information that is relevant to their investments.The CSA have also considered the potential for repetition in certain disclosure items and are proposing techniques for eliminatingmuch of this repetition. However, the CSA continue to be of the view that some generic information about mutual funds generallyshould be provided in a simplified prospectus, if only to ensure that the document as a whole is comprehensible and contains themost fundamental information for investors. In addition, the CSA have reviewed the UK documents and believe that they are notentirely comparable to the proposed simplified prospectus. The CSA are of the view that the proposed simplified prospectus containsadditional essential information for investors necessary for informed decision making.

"Packaging" of Mutual Fund Disclosure

Various commenters, including IFIC and the CBA, suggested that the proposed NI permit "packaging" of the fund-specific informationto be contained in a fund summary. "Packaging" is important and would enable a fund summary to be tailored to meet the needsof a specific class of investor or distribution channel. IFIC described its suggestions for "packaging" as permitting "selectiveconsolidation", as required by the purchaser. Another commenter urged the CSA to consider permitting a "back pocket" approachto the fund summary, whereby after some general introductory statements, the specific fund pages requested by the investor couldbe "tucked into the 'back pocket' at the time of delivery. In that format, if the investor only requested information on 3 of the 20 fundsin the fund family, the investor would only have to review six pages rather than 40 pages." The same commenter noted the utilityof this approach for fund families that offer portfolios of mutual funds under asset allocation services, for example.

The CSA note in the Notice of Proposed Changes their proposals to permit "packaging" of mutual fund disclosure. These changesrespond to the comments received.

Rigidity and Lack of Flexibility of the Fund Summary Requirements

Commenters, including IFIC, noted that the use of specified language in the 1998 SP Form could result in mutual funds providing"boilerplate" information, which will have the effect of dissuading mutual fund investors from reading the documents. IFIC suggeststhat regulations for disclosure documents should leave room for flexibility. Another commenter notes that "the last thing we wantis every fund company saying the same thing about everything". The CSA agree with these comments and, as noted in the Noticeof Proposed Changes, are proposing less standardized language in the proposed SP Form and the AIF Form and are giving fundcompanies more flexibility to creatively provide the required information, without requiring specific tables or charts.

4. COMMENTS ON SPECIFIC SECTIONS OR DISCLOSURE ITEMS

Note: In this table, "NI" means the proposed National Instrument 81-101, "SP Form" means the proposed Form 81-101F1, "AIF Form"means the proposed Form 81-101F2 and "CP" means Companion Policy 81-101CP; "1998 Draft" means the version of the NI, SPForm, AIF Form and CP published for comment in July 1998; "NP 36" means National Policy Statement No. 36; and "CSA" meansthe Canadian Securities Administrators.

Comments on the 1998 Draft NI

1998

Draft

Reference

Revised

 

Draft

Reference

Comment CSA Response
1.1

 

Definition of"educationalinformation"

1.1 Definition too restrictive. It prohibits reference to aparticular fund or fund family. A description of anasset allocation model and the importance ofdiversification can be educational. No changes made. An educational explanation of assetallocation models and diversification can be madewithout reference to specific products offered by thefund company. Specific asset allocationservices/models can be described under Item 7Optional Services Provided by the Mutual FundOrganization of Part A of the SP Form.
2.2(1)(b)(i) 2.2(1)(b)(i) Filing of copies or drafts of material contracts at thetime of filing of a preliminary fund summary is notpractical. In many cases the material contracts areonly prepared after the preliminary prospectus is filed. No changes made. Material contracts are fundamentalto the establishment of a new mutual fund. The CSAare of the view that material contracts must be providedin order to facilitate a proper review of the mutual fund.
3.3 3.3 Requirement for a fund company to provide a fundsummary and other documents incorporated byreference to investors upon their request wouldconstitute an activity requiring registration undersecurities legislation. No changes made. Section 7.2 of the proposed CPgives guidance about the CSA's views in this regard.
4.1(2) 4.1(2) Plain language and presentation requirements are toorigid. Delete paragraphs 4.1(2)(b), (c) and (d)prescribing the order of items of information, the useof specific headings and sub-headings and prohibitionagainst inclusion of information other than specificallymandated by the Form. Permit fund-specificinformation to be provided in the middle or at the backof the fund summary. Changes made to provide an additional degree offlexibility in preparing simplified prospectuses.Paragraphs 4.1(2)(b), (d) and (e) (formerly (b), (c) and(d)) retained; these requirements are intended toensure comparability of disclosure between funds.Paragraph 4.1(2)(e) is necessary to ensure that therelevant information that an investor needs to make aninvestment decision is not obscured by otherinformation.
4.2 Deleted Section 4.2 strictly limits the way in which educationalmaterial or general background information can beincorporated into the fund summary. This informationis valued by investors and fund companies should beallowed greater flexibility in the inclusion andpresentation of such materials. Section deleted. Paragraph 4.1(2)(e) permitseducational material (as defined) to be included insimplified prospectuses. See also section 5.4 of theproposed CP.
5.1(1) 5.1(3) Permit other materials, in addition to educationalmaterials, to be packaged with fund summaries.Investors are more likely to read the additional materialif it is included as one convenient package. Fundcompanies want flexibility to bind or attach othermaterials such as application forms and declarationsof trust for registered tax plans, mandatory point ofsale disclosure concerning statements of priorities,conflicts of interest, registrant relationships, salespractices and equity interests. Changes made. In addition to educational material,subsection 5.1(3) of the revised Draft NI permits thesimplified prospectus to be bound with (i) documentsincorporated by reference, (ii) account applicationdocuments, (iii) registered tax plan applications anddocuments, and (iv) any point of sale disclosuredocuments required by securities legislation.
Part 8 Part 7 Fund companies may want the option of being able touse the new prospectus format before the effectivedate. No changes made to the transition provisions. NP36will continue in effect until the effective date of the NI.
Part 8 Part 7 Industry comments will require detailed considerationbefore the NI can be implemented. The effectivetarget date should be extended to an appropriate date. The effective date of the proposed NI will be fixed at anappropriate date that gives fund companies enoughnotice to start preparing their new disclosuredocuments as required for their next renewalprospectus. All new mutual funds established after theimplementation date of the proposed NI will be requiredto comply with the proposed NI and Forms.

Comments on 1998 Draft CP

1998

Draft

Reference

Revised

 

Draft

Reference

Comment CSA Response
3.2(3) 3.2(3) Adopt a flexible approach to the preparation ofamendments to prospectus documents in recognitionof the fact that if prospectus renewal date is imminent,mutual funds may wish to simply file a new prospectusrather than prepare an amending disclosuredocument. No change made. Securities legislation dictates whenan amendment to a prospectus must be filed.Compliance with such requirements cannot be deferredsimply because a pro forma prospectus has been orwill shortly be filed.
Part 4 Part 4 Provide additional clarification of guidelines to beused by the CSA in assessing the appropriateness ofconsolidation of two or more mutual funds into fundsummaries. Consider allowing "packaging" or"selective consolidation". Changes made to delete all references to CSA viewson appropriate fund groupings. Instead subsection4.1(7) simply elaborates that the proposed NI containsno restrictions on how many simplified prospectusescan be consolidated into one multiple SP. Section 4.1has been significantly amended to accommodate thechanges proposed by the CSA to permit a multiple SPand to permit packaging of fund-specific disclosure.
7.1(1) 7.1(1) Requirement to deliver a fund summary is imposed bythe NI but is not required under existing securitieslegislation in some jurisdictions. Does the CSA havethe authority to require this delivery requirement. No changes made. The NI does not impose anyadditional requirements but specifies that therequirement to deliver a prospectus as required undersecurities legislation can be satisfied by delivering asimplified prospectus. Section 7.1 of the proposed CPmerely outlines additional guidelines and views of theCSA in this regard.
7.1(3) 7.1(3) Are fund companies required to have an e-mailaddress so that investors can request information?Will the CSA monitor and direct what is included onthe Internet for mutual funds? No changes made. Neither the proposed NI nor theproposed CP requires fund companies to have an e-mail address. The proposed CP indicates that theCSA encourage fund companies to use other avenuesto facilitate communications with investors. The CSAdoes not necessarily monitor what is included on theInternet, but will examine what is available in certaincircumstances, such as, for example, in investigating acomplaint that is received.
7.3 7.5 A requirement that statements of portfolio transactionsbe delivered to investors in addition to the otherfinancial statements is excessive where suchinvestors only ask for the financial statements. Changes made to clarify that statements of portfoliotransactions are only required to be delivered ifspecifically requested by investors and need not beautomatically delivered in response to requests forfinancial statements.

Comments on 1998 Draft SP Form

1998

Draft

Reference

Revised

 

Draft

Reference

Comment CSA Response
1(3) Part A, 1.1(3)and 1.2(3) Change wording "for the purpose of a distribution" to"to permit the sale of the fund's units or shares" orsimilar lay language. No change made. The required wording will appearonly on a preliminary simplified prospectus and isconsistent with other disclosure required by the CSAfor preliminary prospectuses.
1(7) Part A, 1.1(6)and 1.2(6) Delete the words "and it is an offence to claimotherwise". No change made. The required wording is consistentwith other disclosure required by the CSA forprospectuses.
3 Part A, 3.1 and3.2 Reduce the amount of required disclosure.Questionable whether the information in the lists addvalue in view of the fact that much of it is repetitive ofwhat is included in the table of contents. Changes made to streamline the required disclosurestatements.
4 Part A, 5 and13 Include a new section "General Investment Approach"which would describe the fund manager's investmentphilosophy generally. This would eliminate repetition infund-specific disclosure. Changes made. Item 5(4) of Part A permits thespecific disclosure requested. Part A, Item 13 allowsinformation that would be repeated identically in eachPart B section to be stated only once.
4(1) Part A, 4(1) "What is a Mutual Fund? and What are the Risks?"should be two separate headings. No changes made, other than to streamline therequired disclosure statements.
4, Instruction (1) Part A, 4,Instruction (1) Define "specialization risk" via a glossary. No change made.
5(1) Part A, 5(1) Delete the word "Details" from the heading. Change made.
5(4) Part A, 5(5) Allow some flexibility where information is not identicalfor all funds to provide this information in the generalfund information rather than in the fund-specificinformation. Change made. Information must be the same forsubstantially all the mutual funds.
6.1 and 6.2 Part B, 5 Delete the information relating to the "date fundestablished" and the "securities offered". No change made, other than to clarify the date to beinserted in response to this Item.
6.1 Part B, 4 Information required by Item 6.1 should be providedlater in fund summary. Changes made. Information relating to organizationand management of a fund in a single simplifiedprospectus has been moved to Part B, although in amultiple SP, the disclosure must be provided in theapplicable order towards the front of the document.
6.1 Part A, 5 andPart B, 4 Not relevant for the fund summary to name thetrustee, portfolio adviser, principal distributor,custodian and registrar of a mutual fund. Move thisinformation to fund prospectus. No changes made. The CSA consider this informationimportant for investors to know.
6.2 Part B, 5 Move information under "securities offered" to"Organization and Management". No change made.
6.2(3) Part B, 5 Include a glossary of fund types. No change made.
7 Part B, 10 Disclosure of who the fund is unsuitable for may betoo onerous without the relevant "know your client"information. Adopt U.S. approach and make suitabilityoptional rather than mandatory. A statement ofsuitability should only comment on type of portfolio andnot type of investor that the fund is suitable for. Changes made. Part B, Item 10 continues to requirethe disclosure regarding the suitability of the fund fortypes of portfolios and investors. Description mayrelate to the type of portfolio or type of investor forwhich the fund may or may not be suitable.
7 Part B, 10 Define the various levels of investor risk tolerance. No change made.
8 Part B, 6 Investment strategies are not objectives and furtherclarification of investment objectives is needed.Securityholders should only have the right to vote ifchange is to the fundamental nature of the fund (thatis, a change is proposed to be made to the objectivesand not to the strategies used by a mutual fund toachieve those objectives). Certain limited changes made to remove items ofdisclosure to fall under a section dealing withstrategies. The CSA are of the view that thefundamental investment objectives are frequently toonarrowly defined by fund companies. The instructionsto the item provide further guidance to what isconsidered by the CSA to comprise the fundamentalinvestment objectives of a mutual fund.
8 Part B, 6 Prescribe ranges of percentages for asset classes,especially for balanced funds and asset allocationfunds. No change made. There is no widely accepteddefinition of fund types based on asset composition.The CSA have not attempted to set such parameters.
8, 9 and 10 Part B, 6, 7 and9 Information under the headings InvestmentObjectives, Investment Strategies and Risks is toolengthy and not particularly valuable to investors.Combine the three sections into one section. No change made in respect of this comment. Thechanges being introduced are intended to improve andprovide more detailed disclosure in these key areas.The distinction between the sections on investmentobjectives and investment strategies is to set out moreclearly what would be considered a fundamentalinvestment objective.
8 Part B, 6 A discussion of portfolio turnover belongs ininvestment objectives, if at all. No change made.
9 Part B,7 If the investment strategy is the same for all funds inthe fund summary it would be less repetitive to allowthe strategies to be described once in a generalinformation section. Changes made. Part A, Item 13 allows information thatwould be repeated identically in each Part B section tobe stated only once.
9(3) Part B, 7(4) Portfolio turnover disclosure and the taxconsequences required to be disclosed by Item 9(3) ofthe 1998 SP Form appears to be very complex forinvestors. It should be moved to prospectus. No change made.
10 Part B, 9 General information about risks should be moved togeneric education document or the section on generalinvestment risks. No change made. A generic education document is notproposed to be required as part of the proposeddisclosure regime. The risks that are to be discussedin the fund-specific section are risks that are notgenerally applicable to all funds and hence, are notdisclosed under the section on general investmentrisks.
10(1) Part B, 9(1) Assessing the materiality of a risk to an investor isdifficult as it may depend upon the profile of theinvestor. Changes made. The reference "to an investor" hasbeen deleted.
10(3) Part B, 9(3) Do not require a cross-reference back to "GeneralInvestment Risks". No change made.
10 Part B, 9 The instructions to Item 10 are too complex and couldgive rise to very long presentations. No change made.
11 Part B, 11 Funds that have been in existence prior to a publicoffering should be permitted to include pastperformance subject to certain conditions. No change made.
11 Part B, 11 Provide guidelines on use of historical performancedata after a material change. National Policy Statement No. 39 currently, andproposed National Instrument 81-102 will, onceeffective, provide parameters regarding the use ofperformance data. Any material change in the affairs ofthe fund that could have affected the performance ofthe fund must be disclosed.
11 Part B, 11 Permit other types of performance data to bedisclosed. No change made.
11 Part B, 11 Require only year by year returns; delete line graphand annual compound returns. No change made.
11.1(5) Part B, 11.1(4) Move disclosure of tax implications for taxableinvestors of reinvested distributions to the sectiondisclosing the fund's distribution policy. No change made.
11.1 Part B, 11.2 Replace calendar year returns bar chart with all-timeperiod analysis. No change made. The CSA are of the view that the 10year bar chart is easier for investors to understand.
11.2 Part B, 11.3 Include dollar values for fund and benchmark for thefinal year illustrated in the line graph. Changes made to clarify when dollar values are to beshown.
11.2 Part B, 11.3 The required comparison to a broad-based securitiesindex may not be appropriate for a fund and themanager should have the discretion to omit the indexor choose another more appropriate index. Considerthe use of peer group performance as a benchmark orthe use of composite benchmarks. Establish standardbenchmarks or more precise rules for determiningbenchmarks. No change made. The CSA do not intend to prescribestandard benchmarks, but are of the view that a broad-based index is appropriate to provide investors with acontext in which to evaluate the performance of aparticular fund. A non-securities index or a morenarrow index that reflects more closely the marketsectors that the fund invests in may be used in additionto the broad-based index.
11.3 Part B, 11.4 Disclose annual compound returns in the table offund-specific information (Item 6, 1998 Draft SPForm), in addition to management expense ratios,management fees, operating expenses and portfolioturnover rates - but only for most recent year. No change made.
11.2, 11.3 Part B, 11.3,11.4 Why does a fund have to explain reasons for using adifferent index than the index used in previous filings,since the investor would not have been aware of theindex previously used? No change made. An index provides an investor with abasis to evaluate a fund's performance and should notbe subject to frequent change in order to present thefund's performance in a more favourable light.Changes should be explained.
13 Part B, 13 Detail in the financial highlights could beoverwhelming. Delete information relating to fundsize, number of units/shares outstanding and portfolioturnover rate. Require only one table with informationrelating to size of fund, management expense ratio,investors' share of expenses (per $1000), investors'gain/loss (per $1000), distributions (per $1000 - butwith no breakdown) and year end net asset value perunit. Changes made to simplify the financial highlights tablesand to ensure they contain the most relevantinformation for investors.
16 Part A, 8 Require clearer explanation of fees and expenses soinvestors understand that they are responsible forthese costs. Tables showing the impact of fees andexpenses takes up too much space relative tosignificance of the information. Require only astatement of the time required before an investorrecoups the sales charge costs or replace the tablewith a narrative description. Changes made to ensure the most relevant informationand examples are provided to investors.

Comments on 1998 Draft AIF Form

1998

Draft

Reference

Revised

 

Draft

Reference

Comment CSA Response
1(3) 1.1(3)

 

1.2(3)

Can the CSA override existing securities legislation bymerely including the words "despite securitieslegislation"? The rule-making powers granted OntarioSecurities Commission under the Securities Act(Ontario) do not, under subsection 143(13) of the Act,permit changes to existing securities regulation. No change made. The CSA are satisfied that thedrafting is correct and that they have the requisiteauthority to make the changes to general prospectusdisclosure requirements contained in securitieslegislation. The reference to "securities legislation" inthis context generally relates to other rules orregulations.
3(3) 3(3) Relevance of disclosure of material amendments toconstating documents is not readily apparent. Whereamendments are relevant, this information would haveto be disclosed elsewhere. No change made.
3(4) 3(4) Disclosure of all name changes since a fund'sformation is not relevant to new investors and wouldbe quite onerous for funds that have been in existencefor some time. No changes made. The wording of Item 3(4) of theproposed AIF Form clarifies that all former names of amutual fund must be disclosed. The CSA are of theview that former names of a fund are relevant historicalinformation.
3(5) 3(5) Clarify the term"major event". Why is the period ofdisclosure 10 years instead of some shorter period? No change made. Item 3(5) lists the typical changesthat would be considered major events, but isintentionally open ended to capture other events ofsimilar significance. Disclosure for a 10 year periodcoincides with the 10 year period for performancedisclosure.
4(3) 4(1) What is the relevance of explaining that the fund issubject to required investment restrictions andpractices and that the fund is managed in accordancewith these restrictions and practices?

 

No change made. The disclosure required by this Itemprovides information to investors relating to the mannerin which the fund operates.
4(4) 6(2) and 7(6) ofPart B of SPForm The disclosure required by Item 4(4) should be in thefund summary and not the fund prospectus. Change made.
4(5) 4(2) Where regulatory approval has been obtained to varyfrom any investment restrictions and practicescontained in securities legislation, sufficient to statecurrent practices without explicitly setting out how thevariation constitutes a deviation from existingsecurities legislation. No change made. Disclosure of the details ofpermitted variations is in keeping with the disclosurerequired by Item 4(1) of the proposed AIF Form toensure that the disclosure under Item 4(1) is notmisleading.
10 Item 5,Instruction (4)of Part B ofSP Form Require disclosure of other classes of securitiesoffered by the fund only if the existence of the otherclasses is relevant to the class being offered and onlyto the extent of such relevance. Changes made. Disclosure of existence and details ofother classes of securities ranking ahead of or equallywith the class of securities being offered by simplifiedprospectus must be provided in the simplifiedprospectus and must be sufficient for the investor tounderstand the rights attaching to the securities beingoffered.
11(2) 7(2) Requirement to state date and time of day that netasset value is determined does not take intoconsideration the fact that most managers andtrustees have considerable flexibility to undertakethese calculations. Would a change in the time of dayfor calculation require an amendment to theprospectus? No change made. The CSA do not consider that mostfund companies have this "considerable flexibility"under the constating documents of the fund.
12(5) 8(5) The disclosure required by this provision appears tosuggest that the dealer has lost the right to sue theinvestor in connection with a failed purchase. This isnot appropriate as the failed purchase is not within theambit of the dealer's control. No change made. Proposed National Instrument 81-102 does not mandate any rights for dealers to seekcompensation from their clients for failed purchases;dealers may wish to make arrangements for a right ofrecovery in such circumstances. Item 8(5) of theproposed AIF Form is intended to alert investors to thepossibility of such arrangements.
15(2) 6(2) Disclosure of deviations in valuation practices for a 3year period could be extensive, burdensome and oflimited value to investors. Delete or shorten the timeperiod. No change made.
16 10 Doubtful that investors will consider informationregarding service providers to the manager to berelevant. Managers remain primarily responsible tothe fund. Information is not necessary for investorprotection since the manager is ultimately responsiblefor the acts of service providers. No change made. The CSA are of the view thatinformation about the parties involved in the day to dayoperations of a fund is relevant disclosure tosupplement the information in the simplifiedprospectus.
16.3(2) and16.3(3) 10.3(2) and10.3(3) Sub-advisers are usually under the directresponsibility of portfolio managers. Decisions to hiresub-advisors are usually based on the reputation ofthe company and not the individual. Individuals mayobject to disclosure of their personal information.Consider a guideline that a company cannot promotean individual or group of individual without namingthem in the prospectus. Naming individuals will resultin frequent amendments to the prospectus due toresignations or reassignments. Delete requirement toname individuals. No change made.
16.4(a) 10.4(1)(a) Why is disclosure of brokerage arrangement to firmsthat distribute securities necessary since NationalInstrument 81-105 prohibits reciprocal commissions?Assuming investors get market rates it should beunnecessary to disclose formulae used in allocatingbrokerage business. The manager is under afiduciary obligation to get best execution. Thedisclosure could be quite voluminous. Therequirement should be streamlined or deleted. Changes made to ensure the disclosure is appropriateand meaningful.
17 11 Fund governance disclosure requirements is vague.Clarification is needed as to the general purpose ofthis Item. What is Instruction 2(c) of Item 17.2intended to catch? No change made.
18 12 Clarify the term "business practices". Items 18(a) and(c) appear to be redundant. Change made. Item 18(a) has been deleted. The CSAare of the view that the term "business practices" issufficiently clear.
19.3(1) 13.1(1) Item 19.3(1) would require disclosure of arrangementsrelating to other classes of securities not offered underthe prospectus. The disclosure should be limited tosecurities offered under the prospectus. No change.
24 16 The provision is too broadly drafted and does notcontain any requirement that the material contract berelated to the fund. The phrase "consideration andgeneral nature of the contracts" is too vague. Changes made. Wording added to the Item to clarifythat the agreement should relate to the fund.
25 17 Disclosure of "any proceedings known to becontemplated" is too broad. The 10 year time framefor disclosure of sanctions or penalties is too long andshould be shortened to 5 years. No change made.
26(2) 18(2) Item 26(2) is too broad and may cause difficulties froma practical standpoint. Delete. Changes made. Item 18(3) has been added to the AIFForm to clarify that the disclosure required by Item18(2) does not apply to the form requirements for aprospectus.
27 Deleted Suggested wording change: "Securities legislation insome provinces may give you the right..." Item 27 has been deleted from the AIF Form.
28(3) 19(3) Amend wording of Item 28(3) to capture situationswhere the declaration of trust provides for thedelegation to sign prospectus but another instrumentactually effects the delegation. No change made.
32(3) 23(3) Provide guidance on how to determine "materialbreaches of securities legislation". This Item isredundant in view of Item 25(4). No changes made. The CSA do not view this Item asbeing redundant.

NATIONAL INSTRUMENT 81-101

MUTUAL FUND PROSPECTUS DISCLOSURE

TABLE OF CONTENTS

PART TITLE

PART 1 DEFINITIONS, INTERPRETATION AND APPLICATION

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 Simplified Prospectus

PART 3 DOCUMENTS INCORPORATED BY REFERENCE AND DELIVERY TO SECURITYHOLDERS

3.1 Documents Incorporated by Reference

3.2 Delivery of Preliminary Simplified Prospectus and Simplified Prospectus

3.3 Documents to be Delivered or Sent upon Request0

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 Preparation in the Required Form

PART 5 PACKAGING

5.1 Combinations of Documents

5.2 Order of Contents of Bound Documents

5.3 Separate Binding of Part B Sections of a Multiple SP

5.4 Annual Information Forms

PART 6 EXEMPTION

6.1 Grant of Exemption

6.2 Evidence of Exemption by Securities Regulatory Authority

PART 7 TRANSITION

7.1 Effective Date

7.2 Prospectus Disclosure

7.3 Blacklined Copies

NATIONAL INSTRUMENT 81-101(7)

MUTUAL FUND PROSPECTUS DISCLOSURE

PART 1 DEFINITIONS, INTERPRETATION AND APPLICATION

1.1 Definitions(8) - 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 financial planning,if the material does not promote or refer to a particular mutual fund or mutual fund family(9) or to the products or servicesoffered by a particular mutual fund or mutual fund family;

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

"multiple AIF" means a document containing two or more annual information forms(10) that have been consolidated inaccordance with section 5.4;(11)

"multiple SP" means a document containing two or more simplified prospectuses that have been consolidated in accordancewith subsection 5.1(1);

"Part A section" means the section of a simplified prospectus that contains the disclosure required by Part A of Form 81-101F1 Contents of Simplified Prospectus;(12)

"Part B section" means the section of a simplified prospectus that contains the disclosure required by Part B of Form 81-101F1;

"plain language" means language that can be understood by a reasonable person, applying a reasonable effort;(13)

"single AIF" means an annual information form that has not been consolidated with another annual information form undersection 5.4; and

"single SP" means a simplified prospectus that has not been consolidated with another simplified prospectus undersubsection 5.1(1).

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.

PART 2 DISCLOSURE DOCUMENTS

2.1 Filing of Disclosure Documents

(1) A mutual fund

(a) that files a preliminary prospectus shall file the preliminary prospectus in the form of a preliminary simplifiedprospectus prepared in accordance with Form 81-101F1, and shall concurrently file a preliminary annualinformation form prepared and certified in accordance with Form 81-101F2 Contents of Annual InformationForm;

(b) that files a pro forma prospectus shall file the pro forma prospectus in the form of a pro forma simplifiedprospectus prepared in accordance with Form 81-101F1, and shall concurrently file a pro forma annualinformation form prepared in accordance with Form 81-101F2;

(c) that files a prospectus shall file the prospectus in the form of a simplified prospectus prepared in accordancewith Form 81-101F1, and shall concurrently file an annual information form prepared and certified inaccordance with Form 81-101F2; and

(d) that files an amendment to a prospectus

(i) shall file an amendment to a simplified prospectus and shall concurrently file an amendment to therelated annual information form, or

(ii) in circumstances in which changes are made only to an annual information form, shall file anamendment to the annual information form.

(2) An amendment to a simplified prospectus or to an annual information form may consist of either a separate amendingdocument or an amended and restated simplified prospectus or annual information form.

2.2 Supporting Documents

(1) A mutual fund shall

(a) file with a preliminary simplified prospectus and a preliminary annual information form any other supportingdocuments required to be filed under securities legislation(14); and

(b) at the time a preliminary simplified prospectus and preliminary annual information form are filed, deliver orsend to the securities regulatory authority(15)

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

(ii) for

(A) a new mutual fund, a copy of a draft opening balance sheet of the mutual fund, and

(B) an existing mutual fund, a copy of the latest audited financial statements 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 simplified prospectus and a pro forma annual information form

(i) a copy of any material contract made by the mutual fund, and a copy of any amendment to a materialcontract 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 simplified prospectus and pro forma annual information form are filed, deliver or sendto the securities regulatory authority

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

(ii) a copy of the pro forma annual information form, blacklined to show changes and the text of deletionsfrom the latest annual information form previously filed,

(iii) a copy of a draft of each material contract of the mutual fund, and a copy of each draft amendment toa material contract of the mutual fund, in either case not yet executed but proposed to be executed bythe time of filing of the simplified prospectus, and

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

(3) A mutual fund shall

(a) file with a simplified prospectus and an annual information form

(i) a copy of any material contract, and a copy of any amendment to a material contract, made by themutual fund and not previously filed,

(ii) for a new mutual fund, a copy of the audited balance sheet of the mutual fund, and

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

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

(i) a copy of the simplified prospectus, blacklined to show changes and the text of deletions from thepreliminary or pro forma simplified prospectus,

(ii) a copy of the annual information form, blacklined to show changes and the text of deletions from thepreliminary or pro forma annual information form, and

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

(4) A mutual fund shall

(a) file with an amendment to a simplified prospectus and an amendment to the annual information form

(i) a copy of any material contract made by the mutual fund, and a copy of any amendment to a materialcontract 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 an amendment to a simplified prospectus is filed, deliver or send to the securities regulatoryauthority

(i) if the amendment to the simplified prospectus is in the form of an amended and restated simplifiedprospectus, a copy of that document blacklined to show changes and the text of deletions from thesimplified prospectus,

(ii) if the amendment to the annual information form is in the form of an amended and restated annualinformation form, a copy of the amended annual information form, blacklined to show changes and thetext of deletions from the annual information form, 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 an annual information form in circumstances in which the corresponding simplifiedprospectus is not amended

(i) a copy of any material contract made by the mutual fund, and a copy of any amendment to a materialcontract 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 an amendment to an annual information form is filed, if the amendment is in the form of anamended and restated annual information form, deliver or send to the securities regulatory authority

(i) a copy of the amended and restated annual information form blacklined to show changes and the textof deletions from the annual information form, and

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

2.3 Simplified Prospectus - A simplified prospectus 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 simplified prospectus:

1. The annual information form that is filed concurrently with the simplified prospectus.

2. The most recently filed comparative annual financial statements of the mutual fund, together with the accompanyingreport of the auditor, filed either before or after the date of the simplified prospectus.

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

3.2 Delivery of Preliminary Simplified Prospectus and Simplified Prospectus

(1) The requirement under securities legislation to deliver or send a preliminary prospectus for a mutual fund to a personor company is satisfied by delivering or sending a preliminary simplified prospectus for the mutual fund filed underthis Instrument, prepared in accordance with Form 81-101F1, either with or without the documents incorporated byreference.

(2) The requirement under securities legislation to deliver or send a prospectus for a mutual fund to a person or companyis satisfied by delivering or sending a simplified prospectus for the mutual fund filed under this Instrument, preparedin accordance with Form 81-101F1, either with or without the documents incorporated by reference.

3.3 Documents to be Delivered or Sent upon Request

(1) A mutual fund shall deliver or send to any person or company that requests the simplified prospectus of the mutualfund or any of the documents incorporated by reference into the simplified prospectus, a copy of the simplifiedprospectus or requested document.

(2) A mutual fund shall deliver or send, to any person or company that requests the annual information form of themutual fund, the current simplified prospectus of the mutual fund with the annual information form, unless the mutualfund has previously delivered or sent that simplified prospectus to that person or company.

(3) A mutual fund shall deliver or send all documents requested under this section within three business days of receiptof the request and free of charge.

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

3.5 Soliciting Expressions of Interest Prohibited - Neither a multiple SP that includes both a pro forma simplified prospectusand a preliminary simplified prospectus nor a multiple AIF that includes both a pro forma annual information form and apreliminary annual information form shall be used to solicit expressions of interest.

PART 4 PLAIN LANGUAGE AND PRESENTATION

4.1 Plain Language and Presentation

(1) A simplified prospectus and annual information form shall be prepared using plain language and in a format thatassists in readability and comprehension.

(2) A simplified prospectus

(a) shall present all information briefly and concisely;

(b) shall present the items listed in the Part A section of Form 81-101F1 and the items listed in the Part B sectionof Form 81-101F1 in the order stipulated in those parts; and

(c) may, unless the Part B section is being bound separately from the Part A section as permitted by subsection5.3(1), place the Part B section of the simplified prospectus in any location in the simplified prospectus;(16)

(d) shall use the headings and sub-headings stipulated in Form 81-101F1, and may use sub-headings in itemsfor which no sub-headings are stipulated;

(e) shall include only educational material(17) or the information that is specifically mandated or permitted by Form81-101F1; and

(f) shall not incorporate by reference into a simplified prospectus, from any other document, information that isrequired to be included in a simplified prospectus.

4.2 Preparation in the Required Form - Despite provisions in securities legislation relating to the presentation of the contentof a prospectus, the simplified prospectus and annual information form shall be prepared in accordance with this Instrument.

PART 5 PACKAGING

5.1 Combinations of Documents

(1) A simplified prospectus shall not be consolidated with one or more other simplified prospectuses to form a multipleSP unless the Part A sections of each simplified prospectus are substantially similar.(18)

(2) A multiple SP shall be prepared in accordance with the applicable requirements of Form 81-101F1.

(3) A simplified prospectus or a multiple SP may only be attached to, or bound with, one or more of the followingdocuments:

1. Documents incorporated by reference.

2. Educational material.

3. Account application documents.

4. Registered tax plan applications and documents.

5. Any point of sale disclosure documents required by securities legislation.

5.2 Order of Contents of Bound Documents - If the material or documents referred to in paragraphs 1 to 5 of subsection5.1(3) are attached to, or bound with, a single SP or multiple SP

(a) the single SP or multiple SP shall be the first document contained in the package; and

(b) no pages shall come before the single SP or multiple SP 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.

5.3 Separate Binding of Part B Sections of a Multiple SP

(1) The Part B sections of a multiple SP may be bound separately from the Part A section of that document.

(2) If a Part B section of a multiple SP is bound separately from the Part A section of the multiple SP

(a) all of the Part B sections of the multiple SP shall be bound separately from the Part A section; and

(b) all or some of the Part B sections may be bound together with each other or separately.(19)

5.4 Annual Information Forms

(1) An annual information form shall be consolidated with one or more other annual information forms into a multipleAIF if the related simplified prospectuses are consolidated into a multiple SP.

(2) A multiple AIF shall be prepared in accordance with the applicable requirements of Form 81-101F2.

PART 6 EXEMPTION

6.1 Grant of Exemption

(1) The regulator(20) or the securities regulatory authority may grant an exemption from 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.

6.2 Evidence of Exemption by Securities Regulatory Authority - Without limiting the manner in which an exemption undersection 6.1 may be evidenced, the issuance by the regulator of a receipt for a simplified prospectus and annual informationform, or an amendment to a simplified prospectus and annual information form, is evidence of the granting of the exemptionfrom any form or content requirements relating to a simplified prospectus or annual information form if

(a) the person or company that sought the exemption sent to the regulator, with the pro forma or preliminary simplifiedprospectus and annual information form, or at least 10 days before the issuance of the receipt in the case of anamendment, a letter or memorandum describing the matters relating to the exemption and indicating whyconsideration should be given to the granting of the exemption; 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.

PART 7 TRANSITION

7.1 Effective Date - This Instrument comes into force on , 1999.

7.2 Prospectus Disclosure - The simplified prospectus of a mutual fund for which a preliminary or pro forma simplifiedprospectus is filed, or for which a receipt is obtained, before the date that this Instrument comes into force is not requiredto comply with this Instrument if it complies with National Policy Statement No. 36 as if that policy statement or a rule basedon that policy statement were in force in the local jurisdiction.

7.3 Blacklined Copies - Despite Part 2, a mutual fund need not file a blacklined copy of a document prepared under thisInstrument that compares the document with a document prepared under National Policy Statement No. 36.(21)

COMPANION POLICY 81-101CP TO NATIONAL INSTRUMENT 81-101

MUTUAL FUND PROSPECTUS DISCLOSURE

TABLE OF CONTENTS

PART TITLE

PART 1 PURPOSE OF THE COMPANION POLICY

1.1 Purpose of the Companion Policy

PART 2 PURPOSE AND GENERAL APPROACH OF THE INSTRUMENT

2.1 Purpose of the Instrument

2.2 Simplified Prospectus

2.3 Annual Information Form

2.4 Financial Statements

2.5 Filing and Delivery of Documents

2.6 Supporting Documents

PART 3 PLAIN LANGUAGE AND PRESENTATION

3.1 Plain Language

3.2 Presentation

PART 4 THE MULTIPLE SP

4.1 The Multiple SP

PART 5 THE SIMPLIFIED PROSPECTUS

5.1 General Purposes

5.2 Catalogue Approach

5.3 Additional Information

5.4 Inclusion of Educational Material

5.5 Format

PART 6 THE ANNUAL INFORMATION FORM

6.1 General Purposes

6.2 Accessibility of an Annual Information Form

6.3 Consolidation of Annual Information Forms

6.4 Additional Material

PART 7 DELIVERY

7.1 Delivery of the Simplified Prospectus and Annual Information Form

7.2 Delivery of Documents by a Mutual Fund

7.3 Delivery of Separate Part A and Part B Sections

7.4 Delivery of Non-Educational Material

7.5 Delivery of Financial Statements

PART 8 INVESTMENT DISCLOSURE

8.1 Investment Disclosure

PART 9 NEED FOR MULTIPLE OR SEPARATE APPLICATIONS

9.1 Need for Multiple or Separate Applications

COMPANION POLICY 81-101CP TO NATIONAL INSTRUMENT 81-101

MUTUAL FUND PROSPECTUS DISCLOSURE

PART 1 PURPOSE OF THE COMPANION POLICY

1.1 Purpose of the Companion Policy - The purpose of this Companion Policy is to state the views of the Canadian securitiesregulatory authorities on various matters relating to the Instrument, including,

(a) a discussion of the general approach taken by the Canadian securities regulatory authorities in, and the generalregulatory purpose for, the Instrument;

(b) explanation and discussion of various parts of the Instrument; and

(c) examples of some matters described in the Instrument.

PART 2 PURPOSE AND GENERAL APPROACH OF THE INSTRUMENT

2.1 Purpose of the Instrument

(1) The purpose of the Instrument is to ensure that mutual funds provide investors with disclosure documents that clearlyand concisely state information that investors should consider in connection with an investment decision about themutual fund. Two general approaches have been used in the Instrument in order to achieve this result.

(2) First, the Instrument requires, in subsection 4.1(1), that these documents be prepared using plain language and ina format that assists in readability and comprehension.

(3) Second, the Instrument has been designed to ensure that investors receive disclosure documents that will be helpfulto them, and permits mutual fund organizations considerable flexibility in designing those documents in order to assistinvestors. The Instrument contemplates the use of two documents by a mutual fund (in addition to financialstatements): a simplified prospectus, which is given to all investors, and an annual information form, which isavailable on request, that, together with the financial statements, contain full, true and plain disclosure about themutual fund. However, the Instrument contemplates that, at the option of mutual fund organizations, investors mayreceive only the disclosure documents that pertain to the mutual funds in which they are interested.

2.2 Simplified Prospectus

(1) The Instrument contemplates that all investors in a mutual fund will receive a simplified prospectus, which is to bea clear concise document that is designed to provide the typical investor with the necessary information to permit themaking of an informed investment decision. The Instrument requires only the delivery of a simplified prospectus toan investor in connection with a purchase, unless the investor also requests delivery of the annual information form,financial statements or both.

(2) The approach of the Instrument is to give investors a choice of the amount of information that they wish to considerbefore making a decision about investing in the mutual fund. Investors will have the option of purchasing the mutualfund's securities after reviewing only the information in the simplified prospectus or after requesting and reviewingthe annual information form, financial statements, or both, incorporated by reference into the simplified prospectus.

(3) The Instrument and Form 81-101F1 (the "SP Form") provide detailed requirements as to the contents and format ofa simplified prospectus. These requirements

(a) are designed to ensure that simplified prospectuses are clear, concise, understandable and well-organized,and contain the most important information that an investor would consider in making an investment decision,in order to encourage investors to read and consider the contents of the simplified prospectus;

(b) standardize, to some degree, the order in which information is presented in a simplified prospectus, in orderto ensure that investors may easily compare disclosure about one mutual fund with disclosure about othermutual funds in the same or a different simplified prospectus; and

(c) prohibit the addition of information in the simplified prospectus not specifically required by the SP Form, inorder to prevent a simplified prospectus from expanding to a size that discourages an investor from readingit, and that obscures the most important information about a mutual fund that should be considered by aninvestor.

2.3 Annual Information Form

(1) The Instrument contemplates that a supplemental disclosure document, the annual information form, will be providedto any person on request. The annual information form is incorporated by reference into the simplified prospectus.

(2) Information contained in the related simplified prospectus will generally not be repeated in an annual information formexcept as necessary to make the annual information form comprehensible as an independent document. Generallyspeaking, an annual information form is intended to provide disclosure about different matters than those discussedin the simplified prospectus, such as information concerning the internal operations of the manager of the mutualfund, which may be of assistance or interest to some investors.

(3) The Instrument and Form 81-101F2 (the "AIF Form") are designed to ensure that an annual information form, likea simplified prospectus, is prepared in a clear manner that will encourage investors to read it. Therefore, an annualinformation form is subject to the same general requirements of subsection 4.1(1) of the Instrument as the simplifiedprospectus, which is that both documents must be prepared using plain language and in a format that assistsreadability and comprehension.

(4) The Instrument and the AIF Form allow for more flexibility in the preparation of an annual information form than isthe case with a simplified prospectus. The rules pertaining to the order in which information is to be disclosed in anannual information form are not as stringent as is the case for a simplified prospectus, and an annual informationform may include information not specifically required by the AIF Form.

2.4 Financial Statements - The Instrument contemplates that the mutual fund's most recently filed audited financial statements,and any interim statements filed after those audited statements, be provided upon request to any person or companyrequesting them. Like the annual information form, these financial statements are incorporated by reference into thesimplified prospectus. The result is that future filings will be incorporated by reference into the simplified prospectus, whilesuperseding the financial statements previously filed.

2.5 Filing and Delivery of Documents - Section 2.2 of the Instrument distinguishes between documents that are required bysecurities legislation to be "filed" with the securities regulatory authority and those that must be "delivered" or "sent" to thesecurities regulatory authority. The Canadian securities regulatory authorities remind mutual funds that documents that are"filed" are on the public record, and documents that are "delivered" or "sent" are not necessarily on the public record.

2.6 Supporting Documents - Section 2.2 of the Instrument and other Canadian securities legislation require supportingdocuments to be filed with a simplified prospectus and annual information form and amendments. A list of documentsrequired is set out in an Appendix to National Policy 43-201 Mutual Reliance Review System for Prospectuses and InitialAIFs.(22)

PART 3 PLAIN LANGUAGE AND PRESENTATION

3.1 Plain Language - Subsection 4.1(1) of the Instrument requires that a simplified prospectus and annual information formbe written in plain language. The term "plain language" is defined in the Instrument as "language that can be understoodby a reasonable person, applying a reasonable effort". The Canadian securities regulatory authorities note that the purposeof requiring documents to be written in plain language is to ensure that disclosure documents will be easy to read, andtherefore more widely read by investors than traditional prospectuses. Mutual funds should consider the following plainlanguage techniques in preparing their documents:

using short sentences

using definite, concrete, everyday language

using the active voice

avoiding superfluous words

organizing a document into clear, concise sections, paragraphs and sentences

avoiding legal or business jargon

using strong verbs

using personal pronouns to speak directly to the reader

avoiding reliance on glossaries and defined terms unless they facilitate understanding of the disclosure

avoiding vague boilerplate wording

avoiding abstractions by using more concrete terms or examples

avoiding excessive detail

avoiding multiple negatives

using technical and business terms only when unavoidable and only if clear and concise explanations areprovided for these terms.

3.2 Presentation

(1) Subsection 4.1(1) of the Instrument requires that a simplified prospectus and annual information form be presentedin a format that assists in readability and comprehension. The Instrument and related forms also set out certainaspects of a simplified prospectus and annual information form that must be presented in a required format, requiringsome information to be presented in the form of tables, charts or diagrams. Within these requirements, mutual fundshave considerable flexibility in the format used for simplified prospectuses and annual information forms. Theformatting of documents can contribute substantially to the ease with which the document can be read andunderstood. Mutual funds should consider using the following formatting ideas when preparing their documents:

tabular or bulleted presentation of complex information

maintaining white space on each page to lessen the density of the text

reasonably-sized, easy-to-read typeface

"question and answer" formats

avoiding presenting blocks of text in upper-case or italicized letters

avoiding full-justified margins.

(2) The Canadian securities regulatory authorities are of the view that documents may be easier to read and understandwith the use of design features such as pictures, colour, boxes, shading, graphs, charts, tables, graphics, sidebarsand logos that accurately depict aspects of the mutual fund industry, the mutual fund or mutual fund family orproducts and services offered by the mutual fund family. Mutual funds should, however, exercise caution when usingdesign features in their documents, as excessive use or crowding of design features might make the documents moredifficult to read or understand.

(3) The Canadian securities regulatory authorities note that they have, on occasion, seen amendments to simplifiedprospectuses prepared in highly legal and technical styles. For example, some amendments merely referencespecific lines or sections of a simplified prospectus that are being amended, without providing the reader with arestated section or an explanation for the changes. In addition, some amendments have been presented in the formof photocopies of some other documents, such as meeting materials, with the word "amendment" written on the topof the photocopy. The Canadian securities regulatory authorities are of the view that these approaches areinappropriate ways of amending a simplified prospectus or annual information form under the Instrument. Materialchanges to mutual funds must be described in a format that assists in readability and comprehension, as requiredby subsection 4.1(1) of the Instrument. Therefore, the Canadian securities regulatory authorities expect thatamendments will be expressed clearly, and in a manner that enables the reader to easily read and understand boththe amendment and the revised sections of the relevant document. This manner of expression may require thepreparation of either an amended or restated simplified prospectus or annual information form or a clearly wordedamendment insert for the existing simplified prospectus or annual information form.

PART 4 THE MULTIPLE SP

4.1 The Multiple SP

(1) The predecessor to the Instrument, National Policy Statement No. 36 ("NP36"), contemplated the consolidation ofthe disclosure concerning a number of mutual funds into one document. What NP36 implied, and what theInstrument makes explicit, is that a consolidated "simplified prospectus" pertaining to a number of mutual funds isin law a number of separate simplified prospectuses, one simplified prospectus for each mutual fund. Further, areceipt issued by the securities regulatory authority in connection with a consolidated "simplified prospectus" in lawrepresents a separate receipt for the simplified prospectus pertaining to each mutual fund. The Instrument and theSP Form make clear that a simplified prospectus under the Instrument pertains to one mutual fund and use the term"multiple SP" to refer to a document that contains more than one simplified prospectus. This distinction has beenmade explicit in order to clarify the statutory prospectus delivery obligation that arises on the sale of a security of amutual fund if the two parts of the simplified prospectus are not bound together, as discussed in section 7.3 of thisPolicy.

(2) Under the Instrument, a simplified prospectus consists of two sections: a Part A section, which provides introductoryinformation about the mutual fund, general information about mutual funds and information applicable to the mutualfunds managed by the mutual fund organization, and a Part B section, which contains specific information about themutual fund.

(3) The Instrument states that simplified prospectuses shall not be consolidated to form a multiple SP unless the PartA section of each simplified prospectus is substantially similar. In the view of the Canadian securities regulatoryauthorities, the term "substantially similar" would be applicable in this context if there is a high degree of similaritybetween the Part A sections of the simplified prospectuses that are proposed to be consolidated. This option wouldbe available generally to mutual funds in the same mutual fund family that are administered by the same entities andoperated in the same manner. There may be some deviation between the disclosure that would be provided for someof the mutual funds; those deviations have been largely contemplated by the SP Form.

(4) In order to maximize flexibility for mutual fund organizations and improve the accessibility of disclosure provided toinvestors, the Instrument allows the Part B sections of a multiple SP to be bound separately from the Part A section.In addition, the Instrument permits the physical separation of each Part B section that pertains to a different mutualfund. This would permit an investor to be provided with a Part A section that described the mutual fund family andmutual fund organization generally, and only the fund-specific disclosure that relates to the mutual fund or funds inwhich the investor is interested. This approach could permit a "back pocket" approach in which the Part B sectionsof a simplified prospectus could be inserted in a pocket of the Part A section of the document.

(5) The Instrument and the SP Form contain detailed requirements designed to ensure that the investor is aware thatboth the general and fund-specific parts of a multiple SP should be read.

(6) It is noted that, as with NP36, mutual funds may create and file a document that contains both a pro forma simplifiedprospectus and a preliminary simplified prospectus in order to include the disclosure of a new mutual fund indocuments that already pertain to existing mutual funds.

(7) The Instrument contains no restrictions on how many simplified prospectuses can be consolidated into a multiple SP.

PART 5 THE SIMPLIFIED PROSPECTUS

5.1 General Purposes - The general purposes of a simplified prospectus are described in section 2.2 of this Policy. In lightof those purposes, the Canadian securities regulatory authorities wish to bring a number of matters to the attention of thepersons or companies that prepare simplified prospectuses.

5.2 Catalogue Approach - The Instrument requires that a multiple SP must present the fund-specific, or Part B, disclosureabout each fund using a catalogue approach, with the disclosure about each mutual fund presented separately from thedisclosure about each other mutual fund. The Canadian securities regulatory authorities consider this requirement to bea key element of the disclosure regime created by the Instrument and related forms and expect that the catalogue approachwill be strictly followed.

5.3 Additional Information

(1) Paragraph 4.1(2)(a) of the Instrument provides that a simplified prospectus shall provide all information briefly andconcisely. Paragraph 4.1(2)(e) of the Instrument requires that a simplified prospectus shall include only educationalmaterial or information that is specifically mandated or permitted by the required form.

(2) As described in Part 2 of this Policy, the general requirements referred to in subsection (1) are important elementsof the disclosure regime implemented by the Instrument and related forms. The Canadian securities regulatoryauthorities are of the view that simplified prospectuses must be restricted to key information and kept short in orderto encourage as many potential investors as possible to read simplified prospectuses.

5.4 Inclusion of Educational Material

(1) Paragraph 4.1(2)(e) of the Instrument permits the inclusion of educational material in a simplified prospectus. Thereare no requirements as to the location of any educational material; however, the Canadian securities regulatoryauthorities recommend that educational material contained in a simplified prospectus be close to mandateddisclosure to which the educational material substantively relates.

(2) It is noted that educational material contained in a simplified prospectus is subject to the general requirements of theInstrument, and therefore should be presented in a manner consistent with the rest of the simplified prospectus.Therefore, the educational material should be concise, clear and not so lengthy as to detract from the clarity orpresentation of the balance of the simplified prospectus.

(3) The definition of "educational material" contained in section 1.1 of the Instrument excludes material that promotesor refers to a particular mutual fund or mutual fund family or to the products or services offered by the mutual fundor mutual fund family. Mutual funds should ensure that any material included within, attached to or bound with asimplified prospectus is educational material within the meaning of this definition.

5.5 Format - The Canadian securities regulatory authorities emphasize that a simplified prospectus is required to use theheadings and specified sub-headings exactly as they are set out in the Instrument. For sections for which no sub-headingis specified, a simplified prospectus is permitted to include sub-headings, under the required headings, if it is so desired.

PART 6 THE ANNUAL INFORMATION FORM

6.1 General Purposes - The general purposes of an annual information form are described in section 2.3 of this Policy. In lightof those purposes, the Canadian securities regulatory authorities wish to bring a number of matters to the attention of thepersons or companies that prepare annual information forms.

6.2 Accessibility of an Annual Information Form - The Canadian securities regulatory authorities expect that mutual funds,managers of mutual funds, principal distributors and participating dealers will encourage investors who want moreinformation about a mutual fund to both request and read annual information forms. The Instrument requires that an annualinformation form be sent within three business days of a request, and the Canadian securities regulatory authorities expectthat mutual funds and their managers will be diligent in complying with this requirement.

6.3 Consolidation of Annual Information Forms - Subsection 5.4(1) of the Instrument requires the consolidation of annualinformation forms into a multiple AIF if the related simplified prospectuses are consolidated into a multiple SP. It is notedthat the Instrument does not prevent the consolidation of annual information forms even if the related simplified prospectusesare not consolidated. Therefore, a mutual fund organization may prepare, for instance, one multiple AIF that pertains toall of its mutual funds, even if the simplified prospectuses for those mutual funds are not fully or even partially consolidated.

6.4 Additional Material

(1) The Instrument and AIF Form do not prohibit the inclusion in an annual information form of information notspecifically required by the AIF Form. Among other things, a mutual fund may therefore include educationalinformation in an annual information form. Additional material in an annual information form is, however, subjectto the general requirements contained in subsection 4.1(1) of the Instrument that all information must be presentedin plain language and in a format that assists in readability and comprehension.

(2) The Canadian securities regulatory authorities remind mutual funds that include additional information, such aseducational material, in an annual information form to ensure that that material is not included primarily for purposeof promotion. An annual information form is designed to be easily understandable to investors and less legalistic inits drafting than traditional prospectuses, but it still constitutes part of a prospectus under securities legislation.

PART 7 DELIVERY

7.1 Delivery of the Simplified Prospectus and Annual Information Form

(1) The Instrument requires delivery to all investors of a simplified prospectus. However, a mutual fund is free to adopta practice of routinely providing investors or potential investors with a simplified prospectus, annual information formand financial statements if it so chooses.

(2) The Canadian securities regulatory authorities encourage mutual funds, their managers and principal distributors tomake simplified prospectuses available to potential investors as soon as possible in the sales process, in advanceof any requirements contained in the Instrument or securities legislation, either directly or through dealers and othersinvolved in selling mutual fund securities to investors.

(3) The Canadian securities regulatory authorities do not consider the requirements of section 3.4 of the Instrument tobe exclusive. Mutual funds are therefore encouraged to inform investors that they may use the mutual fund's Internetsites and e-mail addresses to request further information and additional documents.

7.2 Delivery of Documents by a Mutual Fund - Section 3.3 of the Instrument requires that a mutual fund deliver or send toa person or company, upon request, a simplified prospectus or documents incorporated by reference. The Canadiansecurities regulatory authorities are of the view that compliance with this specifically-mandated requirement by anunregistered entity is not a breach of the registration requirements of securities legislation.

7.3 Delivery of Separate Part A and Part B Sections

(1) Mutual fund organizations that create physically separate Part B sections are reminded of section 3.2 of theInstrument, which provides that the requirement under securities legislation to deliver or send a prospectus for amutual fund is satisfied by the delivery or sending of a simplified prospectus for the mutual fund. This obligationwould be satisfied only by the delivery of both the Part A and Part B sections of a simplified prospectus. Particularlyin the case of a switch by an investor from one mutual fund to another in a mutual fund family, the mutual fundorganization must ensure that the investor is provided with the Part B section of the simplified prospectus pertainingto the mutual fund just purchased, even if the Part A section of the simplified prospectus was previously delivered.

(2) Subsection 5.3(2) of the Instrument permits Part B sections that have been bound separately from the related PartA section to either be bound individually or together, at the option of the mutual fund organization. There is noprohibition against the same Part B section of a multiple SP being bound by itself for distribution to some investors,but also being bound with the Part B section of other mutual funds for distribution to other investors.

7.4 Delivery of Non-Educational Material - The Instrument and related forms contain no restrictions on the delivery of non-educational material such as promotional brochures with either of the simplified prospectus or the annual information form.This type of material may, therefore, be delivered with, but cannot be included within, wrapped around, or attached or boundto, the simplified prospectus and annual information form.

7.5 Delivery of Financial Statements - The Canadian securities regulatory authorities remind mutual funds that statementsof portfolio transactions, as part of the financial statements of a mutual fund, are documents that are incorporated byreference in a simplified prospectus and are to be delivered upon request. Statements of portfolio transactions are onlyrequired to be delivered if specifically requested, and not automatically required to be delivered in response to requests forfinancial statements.

PART 8 INVESTMENT DISCLOSURE

8.1 Investment Disclosure - The SP Form requires detailed disclosure concerning a number of aspects of the investmentapproach taken by a mutual fund, including disclosure concerning fundamental investment objectives, investment strategies,and risk and risk management. The SP Form has been prepared to require better disclosure in this regard than what wasrequired under NP36. The Canadian securities regulatory authorities emphasize the importance that they attach to thisdisclosure, and note that, for many mutual funds, the best persons to prepare and review the disclosure are the portfolioadvisers of the mutual fund. Therefore, it is highly recommended that those persons play an important role in thepreparation and review of this disclosure.

PART 9 NEED FOR MULTIPLE OR SEPARATE APPLICATIONS

9.1 Need for Multiple or Separate Applications

(1) The Canadian securities regulatory authorities note that a person or company that obtains an exemption from aprovision of the Instrument need not apply again for the same exemption at the time of each simplified prospectusand annual information form refiling unless there has been some change in an important fact relating to the grantingof the exemption.

(2) It should be noted that the principle described in subsection (1) does not necessarily apply to applications requiredto be made under the Regulations to the Securities Act (Quebec) for relief from provisions of those Regulations thatare substantially similar to those contained in the Instrument. In that case, an application may be required with eachrefiling of a simplified prospectus and annual information form of a mutual fund.

(3) In Quebec, it may be necessary to apply for exemptions from the equivalent sections in the Act and the Regulations.(23)

NATIONAL INSTRUMENT 81-101

MUTUAL FUND PROSPECTUS DISCLOSURE

FORM 81-101F1

CONTENTS OF SIMPLIFIED PROSPECTUS

TABLE OF CONTENTS

PART TITLE

GENERAL INSTRUCTIONS

PART A GENERAL DISCLOSURE

Item 1: Front Cover Disclosure

Item 2: Table of Contents

Item 3: Introductory Disclosure

Item 4: General Investment Risks

Item 5: Organization and Management Details for a Multiple SP

Item 6: Purchases, Switches and Redemptions

Item 7: Optional Services Provided by the Mutual Fund Organization

Item 8: Fees and Expenses

Item 9: Dealer Compensation

Item 10: Income Tax Considerations for Investors

Item 11: Statement of Rights

Item 12: Additional Information

Item 13: Part B Introduction

Item 14: Back Cover

PART B FUND-SPECIFIC INFORMATION

Item 1: General

Item 2: Introductory

Item 3: General Information

Item 4: Organization and Management Details

Item 5: Fund Details

Item 6: Fundamental Investment Objectives

Item 7: Investment Strategies

Item 8: Top Ten Holdings

Item 9: Risks

Item 10: Suitability

Item 11: Past Performance

Item 12: Distribution Policy

Item 13: Financial Highlights

Item 14: Additional Information

NATIONAL INSTRUMENT 81-101
MUTUAL FUND PROSPECTUS DISCLOSURE
FORM 81-101F1
CONTENTS OF SIMPLIFIED PROSPECTUS

GENERAL INSTRUCTIONS:

General

(1) This Form describes the disclosure required in a simplified prospectus of a mutual fund. Each Item of this Formoutlines disclosure requirements. Instructions to help you provide this disclosure are printed in italic type.

(2) Terms defined in National Instrument 81-101 Mutual Fund Prospectus Disclosure, National Instrument 81-102 MutualFunds or National Instrument 81-105 Mutual Fund Sales Practices and used in this Form have the meanings that theyhave in those national instruments.

(3) A simplified prospectus shall state the required information concisely and in plain language. Reference should bemade to Part 3 of Companion Policy 81-101CP for a discussion concerning plain language and presentation.

(4) Respond as simply and directly as is reasonably possible and include only as much information as is necessary foran understanding of the fundamental and particular characteristics of the mutual fund. Brevity is especially importantin describing practices or aspects of a mutual fund's operations that do not differ materially from those of other mutualfunds.

(5) National Instrument 81-101 requires the simplified prospectus to be presented in a format that assists in readabilityand comprehension. This Form does not mandate the use of a specific format to achieve these goals. However,mutual funds are encouraged to use, as appropriate, tables, captions, bullet points or other organizational techniquesthat assist in presenting the required disclosure clearly and concisely.

(6) Each Item shall be presented under the heading or sub-heading stipulated in this Form; references to the relevant Itemnumber are optional. If no sub-heading for an Item is stipulated in this Form, a mutual fund may include sub-headings,under the required headings, at its option.

(7) A simplified prospectus may contain photographs and artwork only if they are relevant to the business of the mutualfund, mutual fund family or members of the organization of the mutual fund and are not misleading.

(8) Any footnotes to tables provided for under any Item in this Form may be deleted if the substance of the footnotes isotherwise provided.

Contents of a Simplified Prospectus

(9) A simplified prospectus shall pertain to one mutual fund, and shall consist of two sections, a Part A section and a PartB section.

(10) The Part A section of a simplified prospectus contains the response to the Items in Part A of this Form and containsintroductory information about the mutual fund, general information about mutual funds and information applicable tothe mutual funds managed by the mutual fund organization.

(11) The Part B section of a simplified prospectus contains the response to the Items in Part B of this Form and containsspecific information about the mutual fund to which the simplified prospectus pertains.

(12) Despite securities legislation, a simplified prospectus shall present each Item in the Part A section and each Item inthe Part B section in the respective order provided for in this Form. However, the Part B section of the simplifiedprospectus may be placed in any location in the simplified prospectus. For a single SP, this means that the Part Bsection may be placed before the Part A section, somewhere in the middle of the Part A section or after the Part Asection, except for the covers.

(13) Subsection 5.1(3) of National Instrument 81-101 permits certain documents to be attached to, or bound with, asimplified prospectus. Those documents consist of the documents incorporated by reference into the simplifiedprospectus, educational material, account application documents, registered tax plan applications and documents andany point of sale disclosure documents required by securities legislation. No other documents may be attached to,or bound with, a simplified prospectus.

Consolidation of Simplified Prospectuses into a Multiple SP

(14) Subsection 5.1(1) of National Instrument 81-101 states that simplified prospectuses shall not be consolidated to forma multiple SP unless the Part A sections of each simplified prospectus are substantially similar. The Part A sectionsin a consolidated document need not be repeated. These provisions permit a mutual fund organization to create adocument that contains the disclosure for a number of mutual funds in the same family.

(15) As with a single SP, a multiple SP will consist of two Parts:

1. A Part A section that contains general information about the mutual funds, or the mutual fund family, describedin the document.

2. A number of Part B sections, each of which will provide specific information about one mutual fund. The PartB sections shall not be consolidated with each other so that, in a multiple SP, information about each of themutual funds described in the document shall be provided on a fund by fund or catalogue basis and shall setout for each mutual fund separately the information required by Part B of this Form. Each Part B section shallstart on a new page.

(16) For a multiple SP in which the Part A and Part B sections are bound together, the Part B sections may be placed atany location in the document; that is, before the Part A section, somewhere in the middle of the Part A section or afterthe Part A section, except for the back cover. If the Part B sections are bound with the Part A section, the Part Bsections shall be kept together in the document.

(17) Section 5.3 of National Instrument 81-101 permits the Part B sections of a multiple SP to be bound separately fromthe Part A section of the document. If one Part B section is bound separately from the Part A section of thedocument, all Part B sections must be separate from the Part A section of the document.

(18) Subsection 5.3(2) of National Instrument 81-101 permits Part B sections that have been bound separately from therelated Part A section to either be bound individually or together, at the option of the mutual fund organization. Thereis no prohibition against the same Part B section of a multiple SP being bound by itself for distribution to someinvestors, and also being bound with the Part B section of other mutual funds for distribution to other investors.

(19) Section 3.2 of National Instrument 81-101 provides that the requirement under securities legislation to deliver aprospectus for a mutual fund will be satisfied by the delivery of a simplified prospectus, either with or without thedocuments incorporated by reference. Mutual fund organizations that bind separately the Part B sections of a multipleSP from the Part A section are reminded that, since a simplified prospectus consists of a Part A section and a PartB section, delivery of both sections is necessary in order to satisfy the delivery obligations in connection with the saleof securities of a particular mutual fund.

(20) In Items 1 through 4 of Part A of this Form, specific instructions are provided for a single SP and a multiple SP andin some cases for a multiple SP for which the Part A section is either bound with, or separate from, the Part B sectionsof the document. The remainder of Part A of this Form generally refers to disclosure required for "a mutual fund" ina "simplified prospectus". This disclosure should be modified as appropriate to reflect multiple mutual funds coveredby a multiple SP.

PART A GENERAL DISCLOSURE

Item 1: Front Cover Disclosure

1.1 For a Single SP

(1) Indicate on the front cover whether the document is a preliminary simplified prospectus, a pro forma simplifiedprospectus or a simplified prospectus.

(2) Indicate on the front cover the name of the mutual fund to which the simplified prospectus pertains.

(3) Despite securities legislation, state on the front cover of a preliminary simplified prospectus the following:

"A copy of this Simplified Prospectus has been filed with [the securities authority(ies) in each of/certain of theprovinces/provinces and territories of Canada] but the Simplified Prospectus has not yet become final for the purposeof a distribution. Information contained in this Simplified Prospectus may not be complete and may have to beamended. The [units/shares] described in this Simplified Prospectus may not be sold to you until a receipt for theSimplified Prospectus is obtained by the mutual fund from the securities regulatory [authority(ies)]."

(4) If a commercial copy of the preliminary simplified prospectus is prepared, print the legend referred to in subsection(3) in red ink.

(5) For a preliminary simplified prospectus or simplified prospectus, indicate the date of the document, which shall bethe date of the certificates contained in the related annual information form. This date shall be within three businessdays of the date the document is filed with the securities regulatory authority. Write the date in full, writing the nameof the month in words. A pro forma simplified prospectus need not be dated, but may reflect the anticipated date ofthe simplified prospectus.

(6) State, in substantially the following words:

"No securities regulatory authority has expressed an opinion about these [units/shares] and it is an offence to claimotherwise."

1.2 For a Multiple SP in which the Part A section and the Part B sections are bound together

(1) Indicate on the front cover whether the document is a preliminary simplified prospectus, a pro forma simplifiedprospectus or a simplified prospectus for each of the mutual funds to which the document pertains.

(2) Indicate on the front cover the names of the mutual funds and, at the option of the mutual funds, the name of themutual fund family, to which the document pertains.

(3) Despite securities legislation, state on the front cover of a document that contains a preliminary simplified prospectusthe following:

"A copy of this document has been filed with [the securities authority(ies) in each of/certain of the provinces/provincesand territories of Canada] but has not yet become final for the purpose of a distribution. Information contained in thisdocument may not be complete and may have to be amended. The [units/shares] described in this document maynot be sold to you until receipts for this document are obtained by the mutual fund from the securities regulatory[authority(ies)]."

(4) If a commercial copy of the document that contains a preliminary simplified prospectus is prepared, print the legendreferred to in subsection (3) in red ink.

(5) If the document contains a preliminary simplified prospectus or a simplified prospectus, indicate the date of thedocument, which shall be the date of the certificates contained in the related multiple AIF. This date shall be withinthree business days of the date the document is filed with the securities regulatory authority. Write the date in full,writing the name of the month in words. A document that is a pro forma multiple SP need not be dated, but mayreflect the anticipated date of the multiple SP.

(6) State, in substantially the following words:

"No securities regulatory authority has expressed an opinion about these [units/shares] and it is an offence to claimotherwise."

1.3 For a Multiple SP in which the Part A section is bound separately from the Part B sections

(1) Comply with Item 1.2.

(2) State prominently, in substantially the following words:

"A complete simplified prospectus for the mutual funds listed on this page consists of this document and an additionaldisclosure document that provides specific information about the mutual funds in which you are investing. Thisdocument provides general information applicable to all of the [name of mutual fund family] funds. You must beprovided with the additional disclosure document."

Item 2: Table of Contents

2.1 For a Single SP

(1) Despite securities legislation, at the option of the mutual fund, include a table of contents.

(2) If a table of contents is included, begin it on a new page, which may be the inside front cover of the document.

2.2 For a Multiple SP in which the Part A section and the Part B sections are bound together

(1) Include a table of contents.

(2) Include in the table of contents, under the heading "Fund Specific Information", a list of all of the mutual funds towhich the document pertains, with the numbers of the pages where information about each mutual fund can be found.

(3) Begin the table of contents on a new page, which may be the inside front cover of the document.

2.3 For a Multiple SP in which the Part A section is bound separately from the Part B sections

(1) Include a table of contents for the Part A section of the multiple SP.

(2) Begin the table of contents on a new page, which may be the inside front cover of the document.

(3) Include, immediately following the table of contents and on the same page, a list of the mutual funds to which themultiple SP pertains and details on how the Part B disclosure for each mutual fund will be provided.

Item 3: Introductory Disclosure

3.1 For a Single SP

Provide, either on a new page or immediately under the table of contents, under the heading "Introduction", the followingstatement in substantially the following words:

" This Simplified Prospectus contains selected important information to help you make an informed investment decisionand to help you understand your rights.

This Simplified Prospectus contains information about the Fund and the risks of investing in mutual funds generally,as well as the names of the firms responsible for the management of the Fund.

Additional information about the Fund is available in the Annual Information Form, the Fund's most recently filedannual financial statements and any interim financial statements of the Fund filed after those annual financialstatements. These documents are incorporated by reference into this Simplified Prospectus, which means that theylegally form part of this document just as if they were printed as a part of this document. You can get a copy of theAnnual Information Form and those financial statements, including a statement of portfolio transactions, at yourrequest, and at no cost, by calling [toll-free/collect] [insert the toll-free telephone number or telephone number wherecollect calls are accepted, as required by section 3.4 of the Instrument], or from your dealer.

[If applicable] These documents are available on the [mutual fund's/mutual fund family's] Internet site at [insertmutual fund's Internet site address], or by contacting the [mutual fund/mutual fund family] at [insert mutualfund's/mutual fund family's e-mail address].

These documents and other information about the Fund are available on the Internet at www.sedar.com."

3.2 For a Multiple SP

Provide, either on a new page or immediately under the table of contents, under the heading "Introduction" the followingstatement in substantially the following words:

" This document contains selected important information to help you make an informed investment decision and tohelp you understand your rights as an investor.

This document is divided into two parts. The first part, [from pages through ], contains general informationapplicable to all of the [name of fund family] Funds. The second part, [from pages through ] [which is separatelybound], contains specific information about each of the Funds described in this document.

Additional information about each Fund is available in the Fund's Annual Information Form and the Fund's mostrecently filed annual financial statements and any interim financial statements of the Fund filed after those annualfinancial statements. These documents are incorporated by reference into this document, which means that theylegally form part of this document just as if they were printed as a part of this document. You can get a copy of theFund's Annual Information Form and those financial statements, including a statement of portfolio transactions, atyour request, and at no cost, by calling [toll-free/collect] [insert the toll-free telephone number or telephone numberwhere collect calls are accepted, as required by section 3.4 of the Instrument], or from your dealer.

[If applicable] These documents are available on the [mutual funds'/mutual fund family's] Internet site at [insertmutual funds'/mutual fund family's Internet site address], or by contacting the [mutual funds/mutual fund family] at[insert e-mail address].

These documents and other information about the Funds are available at www.sedar.com."

Item 4: General Investment Risks

(1) Disclose under the heading "What is a Mutual Fund and What are the Risks of Investing in a Mutual Fund?"

(a) a brief general description of the nature of a mutual fund; and

(b) the risk factors or other investment considerations that an investor should take into account that are associatedwith investing in mutual funds generally.

(2) For a multiple SP, at the option of the mutual fund, disclose the risk factors and investment considerations that areapplicable to more than one of those mutual funds.

(3) At a minimum, in response to the requirements of subsection (1), include disclosure in substantially the followingwords:

" Mutual funds own different types of investments, depending upon their investment objectives. The value ofthese investments will change from day to day, reflecting changes in interest rates, economic conditions, andmarket and company news. As a result, the value of a mutual fund's [units/shares] may go up and down, andthe value of your investment in a mutual fund may be more or less when you redeem it than when youpurchased it.

[If applicable], The full amount of your investment in any [name of mutual fund family] mutual fund is notguaranteed.

Unlike bank accounts or GICs, mutual fund [units/shares] are not covered by the Canada Deposit InsuranceCorporation or any other government deposit insurer."

(4) State that, under exceptional circumstances, a mutual fund may suspend redemptions. Provide a reference to thedisclosure provided in response to Item 6(2) of Part A of this Form.

INSTRUCTIONS:

(1) Examples of the risks that may be disclosed under subsection (2) are stock market risk, interest rate risk, foreignsecurity risk, foreign currency risk, specialization risk and risk associated with the use of derivatives. If this riskdisclosure is provided under this subsection, the fund-specific disclosure about each mutual fund described in thedocument should contain a reference to the appropriate parts of this risk disclosure.

(2) In providing disclosure under subsection (1), follow the instructions under Item 9 of Part B of this Form, as appropriate.

Item 5: Organization and Management Details for a Multiple SP

(1) Provide, under the heading "Organization and Management of the [name of mutual fund family]", information aboutthe manager, trustee, portfolio adviser, principal distributor, custodian, registrar and auditor of the mutual funds towhich the document relates in the form of a diagram or table.

(2) For each entity listed in the diagram or table, briefly describe the services provided by that entity and the relationshipof that entity to the manager.

(3) For each entity listed in the diagram or table, other than the manager of the mutual funds, provide the municipalityand the province or country where it principally provides its services to the mutual funds. Provide the completemunicipal address for the manager of the mutual funds.

(4) At the option of the mutual fund, provide, under a separate sub-heading, details of the manager of the mutual fund,including the history and background of the manager and any overall investment strategy or approach used by themanager in connection with the mutual funds for which it acts as manager.

(5) Despite subsection (1), if the information required by subsection (1) is not the same for substantially all of the mutualfunds described in the document, provide in the diagram or table contemplated by subsection (1) only that informationthat is the same for substantially all of the mutual funds and provide the remaining disclosure required by thatsubsection in the diagram or table required by Item 4.1 of Part B of this Form.

INSTRUCTIONS:

(1) The information required to be disclosed in this Item shall be presented prominently, using enough space so that itis easy to read.

(2) The descriptions of the services provided by the listed entities should be brief. For instance, the manager may bedescribed as "manages the overall business and operations of the funds", a portfolio adviser may be described as"provides investment advice to the manager about the investment portfolio of the funds" or "manages the investmentportfolio of the funds", and a "principal distributor" may be described as "markets the securities of the funds and sellssecurities [through brokers and dealers] [or its own sales force]".

Item 6: Purchases, Switches and Redemptions

(1) Briefly describe, under the heading "Purchases, Switches and Redemptions", how an investor can purchase andredeem the securities of the mutual fund or switch them for securities of other mutual funds, how often the mutualfund is valued, and state that the issue and redemption price of those securities is based on the mutual fund's netasset value of a security of that class, or series of a class, next determined after the receipt by the mutual fund of thepurchase order or redemption order.

(2) State that, under extraordinary circumstances, the rights of investors to redeem securities may be suspended by themutual fund, and describe the circumstances when the suspension of redemption rights could occur.

(3) For a new mutual fund that is being sold on a best efforts basis, state whether the issue price will be fixed during theinitial distribution period, and state when the mutual fund will begin issuing and redeeming securities based on thenet asset value per security of the mutual fund.

(4) Describe all available purchase options and state, if applicable, that the choice of different purchase options requiresthe investor to pay different fees and expenses and, if applicable, that the choice of different purchase options affectsthe amount of compensation paid by a member of the organization of the mutual fund to a dealer. Include cross-references to the disclosure provided under Items 8 and 9 of Part A of this Form.

Item 7: Optional Services Provided by the Mutual Fund Organization

If applicable, under the heading "Optional Services", describe the optional services that may be obtained by typical investorsfrom the mutual fund organization.

INSTRUCTION:

Disclosure in this Item should include, for example, any asset allocation services, registered tax plans, foreign contentmonitoring plans, regular investment and withdrawal plans, U.S. dollar purchase plans, periodic purchase plans, contractualplans, periodic withdrawal plans or switch privileges.

Item 8: Fees and Expenses

8.1 General Disclosure

(1) Set out information about the fees and expenses payable by the mutual fund and by investors in the mutual fundunder the heading "Fees and Expenses".

(2) The information required by this Item shall first be a summary of the fees, charges and expenses of the mutual fundand investors presented in the form of the following table, appropriately completed, and introduced using substantiallythe following words:

"This table lists the fees and expenses that you may have to pay if you invest in the [insert the name of the mutualfund]. You may have to pay some of these fees and expenses directly. The Fund may have to pay some of thesefees and expenses, which will therefore reduce the value of your investment in the Fund."

(3) Include the fees for any optional services provided by the mutual fund organization, as described by Item 7 of PartA of this Form, in the table.

(4) If management fees are payable directly by investors, add a line item in the table to disclose the maximumpercentage that could be paid by investors.

(5) If the manager permits negotiation of a management fee rebate, provide disclosure of these arrangements. If thesearrangements are not available for each mutual fund described in the document, make this disclosure in thedescription of fees and expenses required for each fund by Item 5 of Part B of this Form and include a cross-referenceto that information in the table required by this Item.

Fees and Expenses Payable by the Fund
Management Fees [See Instruction (1)]

[disclosure re management fee rebate program]

Operating Expenses [See Instruction (2)]

 

Fund[s] pay[s] all operating expenses, including ______

Fees and Expenses Payable Directly by You
Sales Charges [specify percentage, as a percentage of _____ ]
Switch Fees [specify percentage, as a percentage of _____ , or specify amount]
Redemption Fees [specify percentage, as a percentage of _____ , or specify amount]
Registered Tax Plan Fees [include this disclosureand specify the type of fees if the registered taxplan is sponsored by the mutual fund and isdescribed in the simplified prospectus] [specify amount]
Other Fees and Expenses [specify type] [specify amount]

INSTRUCTIONS:

(1) If the table pertains to more than one mutual fund and not all of the mutual funds pay the same management fees,under "Management Fees" in the table, either

(a) state that the management fees are unique to each mutual fund, include management fee disclosure for eachmutual fund as a separate line item in the table required by Item 5 of Part B of this Form for that mutual fund,and include a cross-reference to that table; or

(b) list the amount of the management fee, including any performance or incentive fee, for each mutual fundseparately.

(2) If the table pertains to more than one mutual fund and not all of the mutual funds have the same obligations to payoperating expenses, either

(a) state that the operating expenses payable by the mutual funds are unique to each mutual fund, include thedescription of the operating expenses payable by each mutual fund as a separate line item in the table requiredby Item 5 of Part B of this Form for that mutual fund, and include a cross-reference to that table; or

(b) provide the disclosure concerning the operating expenses for each mutual fund contemplated by this Itemseparately.

(3) Under "Operating Expenses", state whether the mutual fund pays all of its operating expenses and list the maincomponents of those expenses. If the mutual fund pays only certain operating expenses and is not responsible forpayment of all such expenses, adjust the statement in the table to reflect the proper contractual responsibility of themutual fund.

(4) Show all fees or expenses payable by the mutual fund, even if it is expected that the manager of the mutual fund orother member of the organization of the mutual fund will waive or absorb some or all of those fees and expenses.

(5) If the management fees of a mutual fund are payable directly by a securityholder and vary so that specific disclosureof the amount of the management fees cannot be disclosed in the simplified prospectus of the mutual fund, or cannotbe derived from disclosure in the simplified prospectus, provide as much disclosure as is possible about themanagement fees to be paid by securityholders, including the highest possible rate or range of those managementfees.

8.2 Illustrations of Different Purchase Options

(1) Under the sub-heading "Impact of Sales Charges on Your Investment" provide information, substantially in the formof the following table, concerning the amount of fees payable by an investor under the available purchase optionsand introduced using substantially the following words:

"The following table shows the amount of fees that you would have to pay under the different purchase optionsavailable to you if you made an investment of $1,000 in the Fund, if you held that investment for one, three, five orten years and redeemed immediately before the end of that period.

At Time ofPurchase 1 Year 3 Years 5 Years 10 Years
Sales Charge Option $
---
---
---
---
Redemption ChargeOption(1)
---
$ $ $ $
No Load Option
---
---
---
---
---
[ Other purchase options] $ $ $ $ $

(1) Redemption charges may apply only if you redeem your [units/shares] in a particular year. Redemption charges are shownunder "Fees and Expenses" above.

(2) In preparing the table contemplated by this Item, assume, in determining the fees paid under the sales chargeoption, that the maximum sales commission disclosed in the simplified prospectus is paid by the investor.

Item 9: Dealer Compensation

Provide, under the heading "Dealer Compensation", the disclosure of sales practices and equity interests required bysections 8.1 and 8.2 of National Instrument 81-105.

INSTRUCTIONS:

(1) Briefly state the compensation paid and the sales practices followed by the members of the organization of themutual fund in a concise and explicit manner, without explaining the requirements and parameters for permittedcompensation contained in National Instrument 81-105.

(2) For example, if the manager of the mutual fund pays an up-front sales commission to participating dealers, so stateand include the range of commissions paid. If the manager permits participating dealers to retain the salescommissions paid by investors as compensation, so state and include the range of commissions that can beretained. If the manager or another member of the mutual fund's organization pays trailing commissions, so stateand provide an explanation of the basis of calculation of these commissions and the range of the rates of suchcommissions. If the mutual fund organization from time to time pays the permitted marketing expenses ofparticipating dealers on a co-operative basis, so state. If the mutual fund organization from time to time holdseducational conferences that sales representatives of participating dealers may attend or from time to time payscertain of the expenses incurred by participating dealers in holding educational conferences for salesrepresentatives, so state.

(3) If the members of the organization of the mutual funds follow any other sales practices permitted by NationalInstrument 81-105, briefly describe these sales practices.

(4) Include a brief summary of the equity interests between the members of the organization of the mutual funds andparticipating dealers and representatives as required by section 8.2 of National Instrument 81-105. This disclosuremay be provided by way of a diagram or table.

Item 10: Income Tax Considerations for Investors

(1) Briefly describe under the heading "Income Tax Considerations for Investors" the income tax consequences forinvestors of income and capital gains distributions made by the mutual fund, as well as of the gains or losses thatoccur on the disposition of securities of the mutual fund by the investor.

(2) This description shall explain the different tax treatment applicable to mutual fund securities held in a registeredtax plan as compared to mutual fund securities held in non-registered accounts.

(3) Describe the impact of the mutual fund's distribution policy on a taxable investor who acquires securities of themutual fund late in a calendar year.

(4) If material, describe the potential impact of the mutual fund's anticipated portfolio turnover rate on a taxableinvestor.

(5) Describe how the adjusted cost base of a security of a mutual fund can be calculated by those investors holdingoutside a registered tax plan.

(6) If management fees are paid directly by investors, describe generally the income tax consequences to taxableinvestors of this arrangement.

Item 11: Statement of Rights

Provide a brief explanation, under the heading "What are your Legal Rights?", of an investor's statutory rights of rescissionand damages, including the right of action for misrepresentations contained in the simplified prospectus and in anydocuments incorporated by reference into the simplified prospectus, in substantially the following words:

"Securities legislation in some provinces gives you the right to withdraw from an agreement to buy mutual fundswithin two business days of receiving the Simplified Prospectus, or to cancel your purchase within 48 hours ofreceiving confirmation of your order.

Securities legislation in some provinces and territories also allows you to cancel an agreement to buy mutual fund[units/shares] and get your money back, or to make a claim for damages, if the Simplified Prospectus, AnnualInformation Form or financial statements misrepresent any facts about the Fund. These rights must usually beexercised within certain time limits.

For more information, refer to the securities legislation of your province or territory or consult your lawyer."

Item 12: Additional Information

(1) Provide any specific disclosure required or permitted to be disclosed in a prospectus under securities legislationthat is not otherwise required to be disclosed by this Form.

(2) This Item does not apply to the requirements of securities legislation that are form requirements for a prospectus.

INSTRUCTIONS:

(1) An example of a provision of securities legislation that may be relevant to this Item is the requirement contained inthe conflict of interest provisions of the Canadian securities legislation of a number of jurisdictions to the effect thata mutual fund shall not make an investment in respect of which a related person will receive any fee orcompensation except for fees paid pursuant to a contract disclosed in, among other things, a prospectus.

(2) For a single SP, provide this disclosure either under this Item or under Item 14 of Part B of this Form, whicheveris more appropriate.

(3) For a multiple SP, this disclosure should be provided under this Item if the disclosure pertains to all of the mutualfunds described in the document. If the disclosure does not pertain to all of those funds, the disclosure should beprovided in the fund-specific disclosure required or permitted under Item 14 of Part B of this Form.

Item 13: Part B Introduction

(1) For a multiple SP, at the option of the mutual fund, include in a separate section any explanatory information thatwould otherwise be repeated identically in each Part B section of the document.

(2) Any information included in an introductory section under subsection (1) may be omitted elsewhere in the Part Bsection.

INSTRUCTION:

(1) This Item may be used to avoid the need for repetition of standard information in each Part B section of a multipleSP.

(2) Examples of the type of information that may be moved to an introductory section from other parts of the Part Bsection are:

(a) definitions or explanations of terms used in each Part B section, such as "portfolio turnover rate" and"management expense ratio"; and

(b) discussion or explanations of the tables or charts that are required in each Part B section of the document.

(3) A similar Item is contained in Item 3 of Part B of this Form. A mutual fund organization may include this sectioneither at the end of the Part A section of the multiple SP or at the beginning of the Part B section, at its option.

Item 14: Back Cover

(1) State on the back cover the name of the mutual fund or funds included in the document or the mutual fund family,as well as the name, address and telephone number of the manager of the mutual fund or funds.

(2) State, in substantially the following words:

" Additional information about the Fund[s] is available in the Fund['s/s'] Annual Information Form andfinancial statements. These documents are incorporated by reference into this Simplified Prospectus,which means that they legally form part of this document just as if they were printed as a part of thisdocument.

You can get a copy of the Fund['s/s'] Annual Information Form and financial statements, including astatement of portfolio transactions, at your request, and at no cost, by calling [toll-free/collect] [insert toll-free telephone number or telephone number where collect calls are accepted, as required by section 3.4of the Instrument], or from your dealer or by e-mail at [insert e-mail address].

These documents and other information about the Fund[s], such as information circulars and materialcontracts, are also available [on the [insert name of mutual fund manager] Internet site at [insert fund'sInternet site] or] or at www.sedar.com."

(3) For a multiple SP in which the Part A section is bound separately from the Part B sections, state, in substantiallythe following words:

"A complete simplified prospectus for the mutual funds listed on this cover consists of this document and anadditional disclosure document that provides specific information about the mutual funds in which you areinvesting. This document provides general information applicable to all of the [name of mutual fund family] funds.You must be provided with the additional disclosure document."

PART B FUND-SPECIFIC INFORMATION

Item 1: General

For a multiple SP in which the Part B sections are bound separately from the Part A section, include at the bottom of eachpage of a Part B section a footer in substantially the following words and in a type size consistent with the rest of thedocument:

"This document provides specific information about [name of Fund]. It should be read in conjunction with the restof the simplified prospectus of the [name of mutual fund family]. This document and the document that providesgeneral information about [name of mutual fund family] together constitute the simplified prospectus".

Item 2: Introductory

2.1 For a Single SP

Include at the top of the first page of the Part B section of the simplified prospectus, the heading "Specific Information aboutthe [name of Fund]".

2.2 For a Multiple SP in which the Part A section and the Part B sections are bound together

Include

(a) at the top of the first page of the first Part B section in the document, the heading "Specific Information About Eachof the Mutual Funds Described in this Document"; and

(b) at the top of each page of a Part B section of the document, a heading consisting of the name of the mutual funddescribed on that page.

2.3 For a Multiple SP in which the Part A section is bound separately from the Part B sections

Include at the top of each page of a Part B section of the document, a heading consisting of the name of the mutual funddescribed on that page.

Item 3: General Information

(1) For a multiple SP, at the option of the mutual fund, include in an introductory section any explanatory informationthat would otherwise be repeated identically in each Part B section of the document.

(2) Any information included in an introductory section under subsection (1) may be omitted elsewhere in the Part Bsection.

INSTRUCTION:

(1) See the Instruction to Item 13 of Part A of this Form.

(2) If the disclosure contemplated by this Item is included in Part A of the multiple SP under Item 13 of Part A of thisForm, include in the introduction section of each Part B section of the multiple SP a cross-reference to where thisdisclosure is located in the Part A section of the multiple SP.

Item 4: Organization and Management Details

(1) For a single SP, under the heading "Organization and Management of the [name of mutual fund]", provideinformation about the manager, trustee, portfolio adviser, principal distributor, custodian, registrar and auditor ofthe mutual fund in the form of a diagram or table.

(2) For each entity listed in the diagram or table, briefly describe the services provided by that entity and therelationship of that entity to the manager.

(3) For each entity listed in the diagram or table, other than the manager of the mutual fund, provide the municipalityand the province or country where it principally provides its services to the mutual funds. Provide the completemunicipal address for the manager of the mutual fund.

(4) At the option of the mutual fund, include under a separate sub-heading, details of the manager of the mutual fund,including the history and background of the manager and any overall investment strategy or approach used by themanager in connection with its mutual funds.

(5) Follow the requirements and instructions of Item 5 of Part A of this Form in connection with the diagram or table.

Item 5: Fund Details

Under the heading "Fund Details", disclose, in a table

(a) the type of mutual fund that the mutual fund is best characterized as;

(b) the date on which the mutual fund was started;

(c) the nature of the securities offered by the simplified prospectus;

(d) whether the mutual fund is eligible as an investment for registered retirement savings plans, registered retirementincome funds or deferred profit sharing plans;

(e) whether the mutual fund will constitute foreign property under the ITA;

(f) if this information is not contained in the table required by Item 8.1 of Part A of this Form

(i) the amount of the management fee, including any performance or incentive fee, charged to the mutualfund; and

(ii) details concerning the operating expenses paid by the mutual fund contemplated by Instruction (3) of Item8.1 of Part A of this Form; and

(g) any information required by subsection (5) of Item 5 of Part A of this Form to be contained in Part B.

INSTRUCTIONS:

(1) In disclosing the date on which the mutual fund started, use the date on which the securities of the mutual fund firstbecame available to the public, which will be on, or about, the date of the issuance of the first receipt for aprospectus of the mutual fund. For a mutual fund that formerly offered its securities privately, disclose this fact.

(2) If the mutual fund pays a fee that is determined by the performance of the mutual fund, the disclosure required byparagraph 7.1(1)(c) of National Instrument 81-102 to be described in a simplified prospectus of the mutual fundshould be included in a footnote to the description of the incentive fee in the table.

(3) Examples of types of mutual funds that could be used in response to paragraph (a) are money market, equity, bondor balanced funds related, if appropriate, to a geographical region, or any other description that accurately identifiesthe type of mutual fund.

(4) If the rights attached to the securities being offered are materially limited or qualified by those attached to any otherclass or series of securities of the mutual fund or if another class or series of securities of the mutual fund ranksahead of or equally with the securities being offered, include, as part of the disclosure provided in response toparagraph (c), information regarding those other securities that will enable investors to understand the rightsattaching to the securities being offered.

(5) In providing the disclosure contemplated by paragraph (f), provide any disclosure required by, and follow, theInstructions to Item 8.1 of Part A of this Form.

Item 6: Fundamental Investment Objectives

(1) Set out under the heading "What Does the Fund Invest In?" and under the sub-heading "Investment Objectives"the fundamental investment objectives of the mutual fund, including

(a) information that describes the fundamental nature of the mutual fund, or the fundamental features of themutual fund, that distinguish it from other mutual funds; and

(b) whether the mutual fund will be managed so that its securities will constitute foreign property under theITA.

(2) Describe any restrictions on investments adopted by the mutual fund beyond what is required under securitieslegislation that pertain to the fundamental nature of the mutual fund.

(3) If the mutual fund purports to arrange a guarantee or insurance in order to protect all or some of the principalamount of an investment in the mutual fund, include this fact as a fundamental investment objective of the mutualfund and

(a) identify the person or company providing the guarantee or insurance;

(b) provide the material terms of the guarantee or insurance, including the maturity date of the guarantee orinsurance;

(c) if applicable, state that the guarantee or insurance does not apply to the amount of any redemptionsbefore the maturity date of the guarantee or before the death of the securityholder and that redemptionsbefore that date would be based on the net asset value of the mutual fund at the time; and

(d) modify any other disclosure required by this section appropriately.(24)

INSTRUCTIONS:

(1) State the type or types of securities, such as money market instruments, bonds or equity securities, in which themutual fund will primarily invest.

(2) If the mutual fund primarily invests, or intends to primarily invest, or if its name implies that it will primarily invest

(a) in a particular type of issuer, such as foreign issuers, small capitalization issuers or issuers located inemerging market countries;

(b) in a particular geographic location or industry segment; or

(c) in portfolio assets other than securities,

the mutual fund's fundamental investment objectives should so indicate.

(3) If a particular investment strategy is an essential aspect of the mutual fund, as evidenced by the name of the mutualfund or the manner in which the mutual fund is marketed, disclose this strategy as an investment objective. Thisinstruction would be applicable, for example, to a mutual fund that described itself as an "asset allocation fund" ora "mutual fund that invests primarily through the use of derivatives".

Item 7: Investment Strategies

(1) Describe under the heading "What Does The Fund Invest In?" and under the sub-heading "Investment Strategies"

(a) the principal investment strategies that the mutual fund intends to use in achieving its investmentobjectives; and

(b) the process by which the mutual fund's portfolio adviser selects securities for the fund's portfolio, includingany investment approach, philosophy, practices or techniques used by the portfolio adviser or anyparticular style of portfolio management that the portfolio adviser intends to follow.

(2) Indicate what types of securities, other than those held by the mutual fund in accordance with its fundamentalinvestment objectives, may form part of the mutual fund's portfolio assets under normal market conditions.

(3) If the mutual fund intends to use derivatives

(a) for hedging purposes only, state that the mutual fund may use derivatives for hedging purposes only;

(b) for non-hedging purposes, or for hedging and non-hedging purposes, briefly describe

(i) how derivatives are or will be used in conjunction with other securities to achieve the mutualfund's investment objectives,

(ii) the types of derivatives expected to be used and give a brief description of the nature of eachtype, and

(iii) the limits of the mutual fund's use of derivatives.(25)

(4) If the mutual fund is not a money market fund, and intends to engage in active and frequent trading of portfoliosecurities as a principal investment strategy to achieve its investment objectives such that the portfolio turnoverrate of the mutual fund is expected to be more than 70 percent, describe

(a) the tax consequences to securityholders of an active portfolio turnover, and

(b) how the tax consequences of, or trading costs associated with, the mutual fund's portfolio turnover mayaffect the mutual fund's performance.

(5) If the mutual fund may depart temporarily from its fundamental investment objectives as a result of adverse market,economic, political or other considerations, disclose any temporary defensive tactics the mutual fund's portfolioadviser may use or intends to use in response to such conditions.

(6) Describe any restrictions on investments adopted by the mutual fund beyond what is required under securitieslegislation that do not pertain to the fundamental nature of the mutual fund.

INSTRUCTION:

A mutual fund may, in responding to this Item, provide a discussion of the general investment approach or philosophyfollowed by the portfolio adviser of the mutual fund.

Item 8: Top Ten Holdings

List the ten largest holdings of the mutual fund, by percentage of net assets of the mutual fund, as at the end of the lastcompleted financial year of the mutual fund and state the percentage of the net assets of the mutual fund that are investedin each of those holdings.

INSTRUCTIONS:

(1) If the mutual fund owns more than one class of securities of an issuer, those classes should be aggregated forpurposes of the calculations to be made under this Item.

(2) Portfolio assets other than securities should be aggregated if they have substantially similar investment risks andprofiles. For instance, gold certificates should be aggregated, even if they are issued by different financialinstitutions.

(3) Cash and cash equivalents should be treated as one separate discrete category.

(4) In making the determinations of its holdings for purposes of the disclosure required by this Item, a mutual fundshould, for each derivative that is held by the mutual fund for purposes other than hedging and for each indexparticipation unit held by the mutual fund, consider that it holds directly the underlying interest of that derivative orits proportionate share of the securities held by the issuer of the index participation unit.

Item 9: Risks

(1) Set out specific information concerning any material risks associated with an investment in the mutual fund, otherthan those risks previously discussed in response to Item 4 of Part A of this Form, under the heading "What arethe Risks of Investing in the Fund?".

(2) For a money market fund, include disclosure to the effect that although the mutual fund intends to maintain aconstant price for its securities, there is no guarantee that the price will not go up and down.

(3) Include specific cross-references to the risks described in response to paragraph 1(b) of Item 4 of Part A of thisForm that are applicable to the mutual fund.

(4) If the mutual fund offers more than one class or series of securities, disclose the risks that the investmentperformance, expenses or liabilities of one class or series may affect the value of the securities of another classor series, if applicable.

INSTRUCTIONS:

(1) Consider the mutual fund's portfolio investments as a whole.

(2) Provide the disclosure in the context of the mutual fund's fundamental investment objectives and investmentstrategies, outlining the risks associated with any particular aspect of those fundamental investment objectives andinvestment strategies.

(3) Include a discussion of general market, political, market sector, liquidity, interest rate, foreign currency,diversification, credit, legal and operational risks, as appropriate.

(4) Include a brief discussion of general investment risks, such as specific company developments, stock marketconditions, general economic and financial conditions in those countries where the investments of the mutual fundare listed for trading, applicable to the particular mutual fund.

(5) If derivatives are to be used by the mutual fund for non-hedging purposes, describe the risks associated with anyuse or intended use by the mutual fund of derivatives.

Item 10: Suitability

Provide a brief statement of the suitability of the mutual fund for particular investors under the heading "Who Should Investin this Fund?", describing either or both of the characteristics of the investor for whom the mutual fund may or may not bean appropriate investment, and the portfolios for which the mutual fund is suited or for which the mutual fund should notbe used.

INSTRUCTIONS:

(1) In responding to the disclosure required by this Item, indicate the level of investor risk tolerance that would beappropriate for investment in the mutual fund.

(2) If the mutual fund is particularly unsuitable for certain types of investors or for certain types of investment portfolios,emphasize this aspect of the mutual fund, and disclose both the types of investors who should not invest in themutual fund, with regard to investments on both a short and long term basis, and the types of portfolios that shouldnot invest in the mutual fund. Conversely, it might be appropriate to discuss whether the mutual fund is particularlysuitable for particular investment objectives.

Item 11: Past Performance(26)

11.1 General

(1) Item 11 applies only to mutual funds that are permitted under paragraph 15.6(a) of National Instrument 81-102Mutual Funds to include performance data in their sales communications.(27)

(2) Despite the specific requirements of this Item, performance data shall not be provided for any period if the mutualfund was not offering its securities by way of a prospectus or simplified prospectus at all times during the period.

(3) In responding to the requirements of this Item, a mutual fund shall comply with section 15.9 of National Instrument81-102 as if that section applied to a simplified prospectus.

(4) Set out in footnotes to the chart, graph or table required by this Item the assumptions relevant to the calculationof the performance information, and include a statement of the significance for taxable investors of the assumptionthat distributions are reinvested.

(5) In the introduction to the chart, graph or table required by this Item, or in a general introduction to the "PastPerformance" section, indicate that

(a) the returns or performance information shown assume that all distributions made by the mutual fund inthe periods shown were reinvested in additional securities of the mutual fund;

(b) the return or performance information do not take into account sales, redemption, distribution or otheroptional charges or income taxes payable that would have reduced returns or performance; and

(c) how the mutual fund has performed in the past does not necessarily indicate how it will perform in thefuture.

(6) Use a linear scale for the each axis of the bar chart and line graph required by this Item.

(7) The y-axis for each of the bar chart and line graph shall start at 0.

11.2 Year-by-Year Returns

(1) Provide a bar chart, under the heading "Past Performance" and under the sub-heading "Year-by-Year Returns",that shows, in chronological order with the most recent year on the right of the bar chart, the annual total return,calculated as provided under subsection (2), of the mutual fund for the lesser of

(a) each of the ten most recently completed calendar years; and

(b) each of the completed calendar years in which the mutual fund has been in existence and in which thesecurities of the mutual fund have been offered by way of a prospectus or simplified prospectus.

(2) Calculate the annual total return of the mutual fund for a year in accordance with the requirements of Part 15 ofNational Instrument 81-102.

(3) Provide an introduction to the bar chart that

(a) indicates that the bar chart shows the mutual fund's annual performance for each of the years shown, andillustrates that the mutual fund's performance has changed from year to year; and

(b) indicates that the bar chart shows, in percentage terms, how much an investment made on January 1 ineach year would have grown or decreased by December 31 in that year.

11.3 Line Graph

(1) If the mutual fund is not a money market fund, include immediately following the bar chart required by Item 11.2,under the sub-heading "Overall Past Performance", a line graph that shows the information described in subsection(2) for the period determined under subsection (3).

(2) The information to be provided in the line graph shall be

(a) the initial value, and final value, of a hypothetical $10,000 investment in the mutual fund as at thebeginning, and as at the end, of the period determined under subsection (3), with the dollar amounts ofthose values shown on the line graph;

(b) the subsequent values, shown graphically, of the investment referred to in paragraph (a) at the end ofeach quarter in the period determined under subsection (3); and

(c) assuming a level of $10,000 at the beginning of the period determined under subsection (3), thesubsequent levels, shown graphically, of each index selected under subsection (6) at the end of eachquarter in the period determined under subsection (3), and the final value of each index at the end of thatperiod with the dollar amount of the final value of each index shown on the line graph.

(3) The period covered by the line graph shall be an unbroken period that

(a) ends on December 31 of the year before the date of the simplified prospectus; and

(b) consists of the least of

(i) 10 years,

(ii) the time since the inception of the mutual fund, and

(iii) the time since the mutual fund began to offer its securities by way of a prospectus or simplifiedprospectus.

(4) Show the hypothetical values for the mutual fund and the index or indices in chronological order, with the mostrecent year on the right.

(5) Provide an introduction to the line graph that indicates that the graph shows the growth of a hypothetical $10,000investment in the mutual fund, as compared to the increase of the shown index or indices for the indicated numberof years.

(6) Include in the line graph, and provide a brief description of

(a) one or more appropriate broad-based securities market indices; and

(b) at the option of the mutual fund, one or more non-securities financial indices or narrowly-based marketindices that reflect the market sectors in which the mutual fund invests.

(7) If the mutual fund includes in the line graph an index that is different from those included in the most recently filedsimplified prospectus, explain the reason(s) for the change and include in the line graph the disclosure requiredby this Item for both the new and former indices.

INSTRUCTIONS:

(1) It is not necessary to disclose the exact value, in a dollar amount, of the hypothetical investment and index levelsas at the end of each quarter in the period covered by the line graph. Subsection (2) requires only that the linegraph itself be detailed enough to show increases or decreases of the relevant level in each quarter in graphic form.Actual dollar amounts may be included in the line graph at the option of the mutual fund, except that the initial valueof $10,000 and the final value at the end of the period covered by the line graph are to be shown as actual dollaramounts, as required by subsection (2).

(2) An "appropriate broad-based securities market index" is one that

(a) is administered by an organization that is not affiliated with any of the mutual fund, its manager, its portfolioadviser or principal distributor, unless the index is widely recognized and used; and

(b) has been adjusted by its administrator to reflect the reinvestment of dividends on securities in the indexor interest on debt.

(3) It may be appropriate for a mutual fund that invests in more than one type of security to compare its performanceto a mix of relevant indices. For example, a balanced fund may wish to compare its performance to both a bondindex and an equity index or to a blended return based on a combination of the returns of the bond index and theequity index, in proportions comparable to the mutual fund's own investment mix.

(4) In addition to the appropriate broad-based securities market index, the mutual fund may compare its performanceto other more financial or narrowly based securities indices that reflect the market sectors in which the mutual fundinvests or that provide useful comparatives to the performance of the mutual fund. For example, a mutual fundcould compare its performance to an index that measured the performance of certain sectors of the stock market(e.g. communications companies, financial sector companies, etc.) or to a non-securities index, such as theConsumer Price Index, so long as the comparison is not misleading.

(5) The descriptions required by subsection (6) of the indices included in the line graph may, at the option of the mutualfund, be presented as footnotes to the line graph.

11.4 Annual Compound Returns

(1) If the mutual fund is not a money market fund, disclose, in the form of a table immediately following the line graphrequired by Item 11.3, under the sub-heading "Annual Compound Returns"

(a) the mutual fund's past performance for the 10, five, three and one year periods ended on December 31in the year immediately before the year in which the simplified prospectus is filed; and

(b) if the mutual fund was offering its securities by way of a prospectus or simplified prospectus for more thanone and less than ten years, the mutual fund's past performance since the inception of the mutual fund.

(2) Provide an introduction to the table that indicates that the table shows the mutual fund's historical annualcompound total return for the periods indicated, as compared to the performance of an indicated index or indices.

(3) Include in the table, for the same periods for which total return information about the mutual fund is provided, thehistorical annual compound total returns or changes of the index or indices for which information is provided in theline graph prepared under Item 11.3.

(4) Calculate the compound total return in accordance with the requirements of Part 15 of National Instrument 81-102.

(5) If the mutual fund includes in the table an index that is different from those included in the most recently filedsimplified prospectus, explain the reason(s) for the change and include in the table the disclosure required by thisItem for both the new and former indices.

Item 12: Distribution Policy

State under the heading "Distribution Policy" whether distributions are made by the mutual fund in cash or reinvested insecurities of the mutual fund, and indicate when distributions are made.

Item 13: Financial Highlights

13.1 Tables

(1) Provide selected financial information about the mutual fund under the heading "Financial Highlights", in the formof the following tables, appropriately completed, and introduced using substantially the following words:

"The following tables show selected key financial information about the Fund and are intended to help youunderstand the Fund's financial performance for the past [insert number] years. This information is derived fromthe Fund's audited annual financial statements. Please see page [insert page number] for information about howyou can obtain the Fund's audited financial statements."

The Fund's Distributions and Net Asset Value per [Unit/Share]

[insertyear] [insertyear] [insertyear] [insertyear] [insertyear]
Distributions: $ $ $ $ $
From net income $ $ $ $ $
From realizedgain $ $ $ $ $
Return of capital $ $ $ $ $
Total AnnualDistributions(1) $ $ $ $ $
Net asset valueat [insert last dayof financial year]of year shown $ $ $ $ $

(1) Distributions were [paid in cash/reinvested in additional [units/shares] of the Fund].

Ratios and Supplemental Data

[insertyear] [insertyear] [insertyear] [insertyear] [insertyear]
Net assets (000's)(1) $ $ $ $ $
Number of [units/shares]outstanding(1)
Management expenseratio(2) % % % % %
Portfolio turnover rate(3) % % % % %

(1) This information is provided as at [insert date of end of financial year] of the year shown.

(2) Management expense ratio is based on total expenses for the stated period and is expressed as an annualized percentageof daily average net assets during the period.

(3) The Fund's portfolio turnover rate indicates how actively the Fund's portfolio adviser manages its portfolio investments. Aportfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in thecourse of the year. The higher a fund's portfolio turnover rate in a year, the greater the trading costs payable by the fundin the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarilya relationship between a high turnover rate and the performance of a fund.

(2) Derive the selected financial information in the tables referred to in subsection (1) from the audited annual financialstatements of the mutual fund.

(3) Provide per unit or per share amounts to the nearest cent, and provide percentage amounts to two decimal places.

(4) Provide the selected financial information required by this Item in chronological order for each of the five mostrecently completed financial years of the mutual fund for which audited financial statements have been filed, withthe information for the most recent financial year in the first column on the right of the table.

(5) If the mutual fund was not in existence or was not offering its securities by way of prospectus for any year for whichinformation would otherwise be required to be provided under subsection (4), the tables shall not include anyinformation for that year and the mutual fund shall disclose by way of a note to the table that the information isunavailable because the mutual fund only came into existence or only commenced offering its securities by wayof prospectus or simplified prospectus on a date specified in that note.

(6) The management expense ratio shall not be shown for any period less than a full financial year of a mutual fund.

(7) If the basis of the calculation of the management fees or of the other fees, charges or expenses that are chargedto the mutual fund is changed or is proposed to be changed and if the change would have had an effect on themanagement expense ratio for the last completed financial year of the mutual fund if the change had been in effectthroughout that financial year, disclose the effect of the change on the management expense ratio in a note to theappropriate table.

(8) Do not include disclosure concerning portfolio turnover rate for a money market fund.

INSTRUCTIONS:

(1) Calculate the mutual fund's portfolio turnover rate by dividing the lesser of the amounts of the purchases and salesof portfolio securities for the financial year by the average of the value of the portfolio securities owned by the mutualfund in the financial year. Calculate the monthly average by totalling the values of portfolio securities as at thebeginning and end of the first month of the financial year and as at the end of each of the succeeding 11 monthsand dividing the sum by 13. Exclude from both numerator and denominator amounts relating to all securities havinga remaining term to maturity on the date of acquisition by the mutual fund of one year or less.

(2) Calculate the management expense ratio of the mutual fund as required by Part 16 of National Instrument 81-102.

13.2 Dealer Compensation from Management Fees

Disclose, under the heading "Dealer Compensation from Management Fees", the approximate amount of the managementfees received by the manager of the mutual fund in the last completed financial year of the mutual fund that were

(a) paid as compensation to registered dealers in connection with the distribution of securities of the mutual fund; and

(b) paid to a registered dealer in connection with any marketing or educational activity.

INSTRUCTION:

Disclosure should include the payment of trailing commissions and the costs of participation in co-operative marketing andeducational and promotional conferences.

13.3 Illustration of Fund Expenses Indirectly Borne by Investors

(1) Following the disclosure required by Item 13.2, under the heading "Fund Expenses Indirectly Borne by Investors",provide an example of the share of the expenses of the mutual fund indirectly borne by investors, containing theinformation and based on the assumptions described in subsection (2).

(2) The information to be provided under this Item shall be an investor's cumulative proportional share of the fees andexpenses paid by the mutual fund, in dollars, over a period of one, three, five and 10 years, assuming

(i) an initial investment of $1,000;

(ii) a total annual return of the mutual fund of five percent in each year, calculated in accordance with section15 of National Instrument 81-102;

(iii) a management expense ratio and operating expense of the mutual fund the same throughout the 10 yearperiod as they were in the last completed financial year of the mutual fund.

(3) Provide an introduction to the disclosure that explains that the disclosure is intended to help an investor comparethe cost of investing in the mutual fund with the cost of investing in other mutual funds, shows the amount of feesand expenses paid by the mutual fund that are indirectly borne by an investor, and describes the assumptions used.

(4) Provide a cross-reference to the disclosure provided under Item 8 of Part A of this Form for information about feesand expenses paid directly by the investor.

Item 14: Additional Information

(1) Provide any specific disclosure required or permitted to be disclosed in a prospectus under securities legislationthat is not otherwise required to be disclosed by this Form.

(2) This Item does not apply to requirements of securities legislation that are form requirements for a prospectus.

INSTRUCTION:

(1) For a simplified prospectus that is not part of a multiple SP, provide this disclosure either under this Item or underItem 12 of Part A of this Form, whichever is more appropriate.

(2) For a multiple SP, this disclosure should be provided under this Item if the disclosure does not pertain to all of themutual funds described in the document. If the disclosure pertains to all of those funds, the disclosure should beprovided in the fund-specific disclosure required or permitted under Item 12 of Part A of this Form.

 

 

NATIONAL INSTRUMENT 81-101
MUTUAL FUND PROSPECTUS DISCLOSURE
FORM 81-101F2
CONTENTS OF ANNUAL INFORMATION FORM
TABLE OF CONTENTS

 

PART TITLE

GENERAL INSTRUCTIONS

Item 1: Front Cover Disclosure

Item 2: Table of Contents

Item 3: Name, Formation and History of the Mutual Fund

Item 4: Investment Restrictions

Item 5: Description of Securities Offered by the Mutual Fund

Item 6: Valuation of Portfolio Securities

Item 7: Calculation of Net Asset Value

Item 8: Purchases and Switches

Item 9: Redemption of Securities

Item 10: Responsibility for Mutual Fund Operations

Item 11: Conflicts of Interest

Item 12: Fund Governance

Item 13: Fees and Expenses

Item 14: Income Tax Considerations

Item 15: Remuneration of Directors, Officers and Trustees

Item 16: Material Contracts

Item 17: Legal and Administrative Proceedings

Item 18: Other Material Information

Item 19: Certificate of the Mutual Fund

Item 20: Certificate of the Manager of the Mutual Fund

Item 21: Certificate of Each Promoter of the Mutual Fund

Item 22: Certificate of the Principal Distributor of the Mutual Fund

Item 23: Exemptions and Approvals

Item 24: Back Cover

 

 

NATIONAL INSTRUMENT 81-101

 

MUTUAL FUND PROSPECTUS DISCLOSURE

 

FORM 81-101F2

 

CONTENTS OF ANNUAL INFORMATION FORM

GENERAL INSTRUCTIONS:

General

(1) This Form describes the disclosure that is required in an annual information form of a mutual fund. Each Item of thisForm outlines disclosure requirements. Instructions to help you provide this disclosure are printed in italic type.

(2) Terms defined in National Instrument 81-101 Mutual Fund Prospectus Disclosure, National Instrument 81-102 MutualFunds or National Instrument 81-105 Mutual Fund Sales Practices and used in this Form have the meanings that theyhave in those national instruments.

(3) An annual information form is intended to supplement the information contained in the related simplified prospectus.Information contained in the related simplified prospectus need not be repeated except as required to make the annualinformation form comprehensible as an independent document. Generally speaking, all of the disclosure required tobe provided in connection with a particular requirement of Form 81-101F1 ("the SP Form") in order to satisfy statutorydisclosure requirements should be contained in the simplified prospectus. For some Items, it may be appropriate toexpand in the annual information form on matters discussed in the simplified prospectus; for instance, a mutual fundorganization may wish to describe in an annual information form some of its optional services in more detail than inthe simplified prospectus. Generally speaking, however, an annual information form is intended to provide disclosureabout different matters than those discussed in the simplified prospectus, which may be of assistance or interest tosome investors.

(4) Unless otherwise required by this Form, information may be presented in a different format and style in an annualinformation form than in a simplified prospectus. An annual information form is required by National Instrument 81-101to be presented in a format that assists in readability and comprehension. This Form generally does not mandate theuse of a specific format to achieve this goal and mutual funds are encouraged to use, as appropriate, tables, captions,bullet points or other organizational techniques that assist in presenting the disclosure clearly.

(5) An annual information form may contain photographs and artwork only if they are relevant to the business of themutual fund, mutual fund family or members of the organization of the mutual fund and are not misleading.

(6) As with a simplified prospectus, an annual information form is to be prepared using plain language. Reference shouldbe made to Part 3 of Companion Policy 81-101CP for a discussion concerning plain language and presentation.

(7) Any footnotes provided for under any Item of this Form may be deleted if the substance of the footnotes is otherwiseprovided.

Contents of an Annual Information Form

(8) An annual information form pertains to one mutual fund but, unlike a simplified prospectus, is not required to be dividedinto a discrete Part A section, pertaining to general disclosure, and a Part B section, pertaining to fund-specificdisclosure.

(9) It is not necessary to disclose the Items required by this Form in an annual information form in any particular orderor under any particular heading. This is unlike the rule for a simplified prospectus, which provides that informationcontained in a simplified prospectus must be in the order and under the headings required by the SP Form.

Consolidation of Annual Information Forms into a Multiple AIF

(10) Section 5.4 of National Instrument 81-101 requires an annual information form to be consolidated with one or moreother annual information forms into a multiple AIF if the related simplified prospectuses are consolidated into a multipleSP.

(11) Unlike the situation with a multiple SP, National Instrument 81-101 does not permit parts of a multiple AIF to be boundseparately.

(12) Unlike the requirements for a multiple SP, there are no requirements that disclosure concerning each mutual funddescribed in a multiple AIF be organized in any particular manner or order. In particular, it is not necessary to use thecatalogue approach required to be used in a multiple SP in which disclosure about individual mutual funds is requiredto be separately presented. Information may be presented separately for each mutual fund, or consolidated, at theoption of the mutual fund organization.

(13) The requirements in this Form generally speak of "a mutual fund". These requirements apply to each mutual fund towhich a multiple AIF pertains.

Item 1: Front Cover Disclosure

1.1 For a Single AIF

(1) Indicate on the front cover whether the document is a preliminary annual information form, a pro forma annualinformation form or an annual information form.

(2) Indicate on the front cover the name of the mutual fund to which the annual information form pertains.

(3) Despite securities legislation, state on the front cover of a preliminary annual information form the following:

"A copy of this annual information form has been filed with [the securities authority(ies) in each of/certain of theprovinces/provinces and territories of Canada] but has not yet become final for the purpose of a distribution.Information contained in this annual information form may not be complete and may have to be amended. Thesecurities described in this annual information form may not be distributed to you until a receipt for the annualinformation form is obtained by the mutual fund from the securities regulatory [authority(ies)]."

(4) If a commercial copy of the preliminary annual information form is prepared, print the legend referred to in subsection(3) in red ink.

(5) For a preliminary annual information form or annual information form, indicate the date of the document, which shallbe the date of the certificates for the document. This date shall be within three business days of the date it is filedwith the securities regulatory authority. Write the date of the document in full, writing the name of the month in words.A pro forma annual information form need not be dated, but may reflect the anticipated date of the annual informationform.

(6) State, in substantially the following words:

"No securities regulatory authority has expressed an opinion about these [units/shares] and it is an offence to claimotherwise."

1.2 For a Multiple AIF

(1) Indicate on the front cover whether the document is a preliminary annual information form, a pro forma annualinformation form or an annual information form for each of the mutual funds to which the document pertains.

(2) Indicate on the front cover the names of the mutual funds and, if desired, the name of the mutual fund family, towhich the document pertains.

(3) Despite securities legislation, state on the front cover of a document that contains a preliminary annual informationform the following:

"A copy of this annual information form has been filed with [the securities authority(ies) in each of/certain of theprovinces/provinces and territories of Canada] but has not yet become final for the purpose of a distribution.Information contained in this annual information form may not be complete and may have to be amended. Thesecurities described in this annual information form may not be distributed to you until a receipt for the annualinformation form is obtained by the mutual fund from the securities regulatory [authority(ies)]."

(4) If a commercial copy of a document that contains a preliminary annual information form is prepared, print the legendreferred to in subsection (3) in red ink.

(5) If the document contains a preliminary annual information form or annual information form, indicate the date of thedocument, which shall be the date of the certificates for the document. This date shall be within three business daysof the date it is filed with the securities regulatory authority. Write the date of the document in full, writing the nameof the month in words. A document that is a pro forma multiple AIF need not be dated, but may reflect the anticipateddate of the multiple AIF.

(6) State, in substantially the following words:

"No securities regulatory authority has expressed an opinion about these [units/shares] and it is an offence to claimotherwise."

Item 2: Table of Contents

Include a table of contents.

Item 3: Name, Formation and History of the Mutual Fund

(1) State the full name of the mutual fund and the address of its head or registered office.

(2) State the laws under which the mutual fund was formed and the date and manner of its formation.

(3) Identify the constating documents of the mutual fund and, if material, state whether the constating documents havebeen amended since the formation of the mutual fund and describe the amendments.

(4) If the mutual fund's name has been changed since its formation, state the mutual fund's former name or names andthe date on which it was changed.

(5) Disclose, and provide details about, any major events affecting the mutual fund in the last 10 years. Includeinformation, if applicable, about

(a) the mutual fund having participated in, or been formed from, an amalgamation or merger with one or moreother mutual funds;

(b) the mutual fund having participated in any reorganization or transfer of assets in which the securityholders ofanother issuer became securityholders of the mutual fund;

(c) any changes in fundamental investment objectives or material investment strategies;

(d) any changes in the portfolio adviser or changes in, or of control of, the manager; and

(e) the mutual fund, before it filed a prospectus as a mutual fund, having existed as a closed-end investment fund,non-public mutual fund or other entity.

Item 4: Investment Restrictions

(1) Include a statement to the effect that the mutual fund is subject to certain restrictions and practices contained insecurities legislation, including National Instrument 81-102, which are designed in part to ensure that the investmentsof the mutual fund are diversified and relatively liquid and to ensure the proper administration of the mutual fund, andstate that the mutual fund is managed in accordance with these restrictions and practices.

(2) If the mutual fund has received the approval of the securities regulatory authorities to vary any of the investmentrestrictions and practices contained in securities legislation, including National Instrument 81-102, provide detailsof the permitted variations.

(3) Describe the nature of any securityholder or other approval that may be required in order to change the fundamentalinvestment objectives and any of the material investment strategies to be used to achieve the investment objectives.

(4) State the restrictions on the investment objectives and strategies that arise out of any of the following matters:

1. Whether the securities of the mutual fund are or will be a qualified investment within the meaning of the ITAfor retirement savings plans, retirement income funds, education savings plans, deferred profit sharing plansor other plans registered under the ITA.

2. Whether the securities of the mutual fund are or will be recognized as a registered investment within themeaning of the ITA.

3. Whether the securities of the mutual fund will constitute foreign property within the meaning of the ITA.

(5) State whether the mutual fund has deviated in the last year from the rules under the ITA that apply to the status ofits securities as

(a) qualified investments within the meaning of the ITA for retirement savings plans, retirement income funds,education savings plans, deferred profit sharing plans or other plans registered under the ITA;

(b) registered investments within the meaning of the ITA; or

(c) non-foreign property under the ITA.

(6) State the consequences of any deviation described in response to subsection (5).

Item 5: Description of Securities Offered by the Mutual Fund

(1) State the description or the designation of securities, or the series or classes of securities, offered by the mutual fundunder the related simplified prospectus and describe the securities or all material attributes and characteristics,including

(a) dividend or distribution rights;

(b) voting rights;

(c) liquidation or other rights upon the termination of the mutual fund;

(d) conversion rights;

(e) redemption rights; and

(f) provisions as to amendment of any of these rights or provisions.

(2) Describe the rights of securityholders to approve

(a) the matters set out in section 5.1 of National Instrument 81-102; and

(b) any matters provided for in the constating documents of the mutual fund.

Item 6: Valuation of Portfolio Securities

(1) Describe the methods used to value the various types or classes of portfolio assets of the mutual fund and itsliabilities for the purpose of calculating net asset value.

(2) If the manager has discretion to deviate from the mutual fund's valuation practices described in subsection (1),disclose when and to what extent that discretion may be exercised and when and how, in the past three years, thatdiscretion has been exercised.

Item 7: Calculation of Net Asset Value

(1) State that the issue and redemption price of securities of the mutual fund is based on the mutual fund's net assetvalue next determined after the receipt of a purchase order and a redemption order. Describe the method followedor to be followed by the mutual fund in determining the net asset value.

(2) State the frequency at which the net asset value is determined and the date and time of day at which it is determined.

(3) If a money market mutual fund intends to maintain a constant net asset value per security, disclose this intention anddisclose how the mutual fund intends to maintain this constant net asset value.

Item 8: Purchases and Switches

(1) Describe the procedure followed or to be followed by investors who desire to purchase securities of the mutual fundor switch them for securities of other mutual funds.

(2) State that the issue price of securities is based on the net asset value of a security of that class, or series of a class,next determined after the receipt by the mutual fund of the purchase order.

(3) Describe how the securities of the mutual fund are distributed. If sales are effected through a principal distributor,give brief details of any arrangements with the principal distributor.

(4) Describe all available purchase options and state, if applicable, that the choice of different purchase options requiresthe investor to pay different fees and expenses and, if applicable, that the choice of different purchase options affectsthe amount of compensation paid by a member of the organization of the mutual fund to the dealer.

(5) Disclose that a dealer may make provision in arrangements that it has with an investor that will require the investorto compensate the dealer for any losses suffered by the dealer in connection with a failed settlement of a purchaseof securities of the mutual fund caused by the investor.

(6) For a mutual fund that is being sold on a best efforts basis, state whether the issue price will be fixed during the initialdistribution period, and state when the mutual fund will begin issuing securities at the net asset value per securityof the mutual fund.

Item 9: Redemption of Securities

(1) Describe the procedures followed or to be followed by an investor who desires to redeem securities of the mutualfund, specifying the procedures to be followed and documents to be delivered before a redemption order pertainingto securities of the mutual fund is accepted by the mutual fund for processing and before payment of the proceedsof redemption is made by the mutual fund.

(2) State that the redemption price of the securities is based on the net asset value of a security of that class, or seriesof a class, next determined after the receipt by the mutual fund of the redemption order.

(3) Disclose that a dealer may make provision in arrangements that it has with an investor that will require the investorto compensate the dealer for any losses suffered by the dealer in connection with any failure of the investor to satisfythe requirements of the mutual fund or securities legislation for a redemption of securities of the mutual fund.

(4) Discuss the circumstances under which the mutual fund may suspend redemptions of the securities of the mutualfund.

Item 10:Responsibility for Mutual Fund Operations

10.1 General

Describe how each of the following aspects of the operations of the mutual fund are administered and who administers thosefunctions:

(a) the management and administration of the mutual fund, including valuation services, fund accounting andsecurityholder records, other than the management of the portfolio assets;

(b) the management of the portfolio assets, including the provision of investment analysis or investmentrecommendations and the making of investment decisions;

(c) the purchase and sale of portfolio assets by the mutual fund and the making of brokerage arrangements relating tothe portfolio assets;

(d) the distribution of the securities of the mutual fund;

(e) if the mutual fund is a trust, the trusteeship of the mutual fund;

(f) if the mutual fund is a corporation, the oversight of the affairs of the mutual fund by the directors of the mutual fund;and

(g) the custodianship of the assets of the mutual fund.

INSTRUCTION:

The disclosure required under Item 10.1 may be provided separately from, or combined with, the detailed disclosureconcerning the persons or companies that provide services to the mutual fund required by Items 10.2 through 10.10.

10.2 Manager

(1) State the name, address, telephone number, e-mail address and, if applicable, website address of the manager ofthe mutual fund.

(2) List the names and home addresses in full or, alternatively, solely the municipality of residence or postal address,and the principal occupations at, and within the five years preceding, the date of the annual information form, of allpartners, directors and officers of the manager of the mutual fund.

(3) If a partner, director or officer of the manager of the mutual fund has held more than one position with the managerof the mutual fund, state only the first and last position held.

(4) If the principal occupation of a director or officer of the manager of the mutual fund is with an organization other thanthe manager of the mutual fund, state the business in which the organization is engaged.

(5) Describe the circumstances under which any agreement with the manager of the mutual fund may be terminated,and include a brief description of the essential terms of this agreement.

10.3 Portfolio Adviser

(1) If the manager of the mutual fund provides the portfolio management services in connection with the mutual fund,so state.

(2) If the manager does not provide portfolio management services, state the names and municipality of the principalor head office for each portfolio adviser of the mutual fund.

(3) State

(a) the extent to which investment decisions are made by certain individuals employed by the manager or aportfolio adviser and whether those decisions are subject to the oversight, approval or ratification of acommittee; and

(b) the name, title, and length of time of service of the person or persons employed by or associated with eitherthe manager or a portfolio adviser of the mutual fund who is or are principally responsible for the day-to-daymanagement of a material portion of the portfolio of the mutual fund, implementing a particular materialstrategy or managing a particular segment of the portfolio of the mutual fund, and each person's businessexperience in the last five years.

(4) Describe the circumstances under which any agreement with a portfolio adviser of the mutual fund may beterminated, and include a brief description of the essential terms of this agreement.

10.4 Brokerage Arrangements

(1) State

(a) the formula, method or criteria, if any, used in allocating brokerage business to persons or companies engagedin the distribution of the securities of the mutual fund;

(b) the formula, method or criteria, if any, used in allocating brokerage business to persons or companies thatfurnish statistical, research or other services to the mutual fund, or to the manager or to the portfolio adviserof the mutual fund; and

(c) the formula, method or criteria, if any, used in allocating brokerage business to an "affiliated entity", within themeaning of that term contained in the Instructions in Item 11.2, and any variation from any formula, methodor criteria applied in allocating brokerage business to a non-affiliated entity.

(2) State the name of any person or company that has provided investment decision-making services to the manageror a portfolio adviser of the mutual fund in connection with the mutual fund since the date of the last annualinformation form of the mutual fund, and a summary of the nature of those services, if all or some of those serviceswere paid for through commissions or brokerage transactions executed on behalf of the mutual fund.(28)

INSTRUCTION:

The term "investment decision-making services" means

(a) advice as to the value of securities and the advisability of effecting transactions in securities;

(b) analyses and reports concerning securities, portfolio strategies or performance, issuers, industries, or economic orpolitical factors and trends; and

(c) data bases or software to the extent they are designed mainly to support the services referred to in paragraphs (a)and (b).

10.5 Principal Distributor

(1) If applicable, state the name and address of the principal distributor of the mutual fund.

(2) Describe the circumstances under which any agreement with the principal distributor of the mutual fund may beterminated, and include a brief description of the essential terms of this agreement.

10.6 Directors, Officers and Trustees

(1) List the names and home addresses in full or, alternatively, solely the municipality of residence or postal address,and the principal occupations at, or within the five years preceding, the date of the annual information form, of alldirectors or officers of an incorporated mutual fund or of the individual trustee or trustees, if any, of a mutual fundthat is a trust.

(2) State, for a mutual fund that is a trust, the names and municipality of residence for each person or company that isresponsible for performing the trusteeship function of the mutual fund.

(3) Indicate, for an incorporated mutual fund, all positions and offices with the mutual fund then held by each personnamed in response to subsection (1).

(4) If the principal occupation of a director, officer or trustee is that of a partner, director or officer of a company otherthan the mutual fund, state the business in which the company is engaged.

(5) If a director or officer of an incorporated mutual fund has held more than one position in the mutual fund, state onlythe first and last position held.

(6) For a mutual fund that is a limited partnership, provide the information required by this Item for the general partnerof the mutual fund, modified as appropriate.

10.7 Custodian

(1) State the name, municipality of the principal or head office, and nature of business of the custodian and any principalsub-custodian of the mutual fund.

(2) Describe generally the sub-custodian arrangements of the mutual fund.

INSTRUCTION:

A "principal sub-custodian" is a sub-custodian to whom custodial authority has been delegated in respect of a material portionor segment of the portfolio assets of the mutual fund.

10.8 Auditor

State the name and municipality of the auditor of the mutual fund.

10.9 Registrar

If applicable, state the name of the registrar of securities of the mutual fund and the cities in which the register of securitiesof the mutual fund are kept.

10.10 Other Service Providers

State the name, municipality of the principal or head office, and the nature of business of each other person or companythat provides services relating to portfolio valuation, securityholder records, fund accounting, or other material services, inrespect of the mutual fund, and describe the contractual arrangements between the mutual fund and the person or company.

Item 11:Conflicts of Interest

11.1 Principal Holders of Securities

(1) The information required in response to this Item shall be given as of a specified date within 30 days before the dateof the annual information form.

(2) Disclose the number and percentage of securities of each class or series of voting securities of the mutual fund andof the manager of the mutual fund owned of record or beneficially, directly or indirectly, by each person or companythat owns of record, or is known by the mutual fund or the manager to own beneficially, directly or indirectly, morethan 10 percent of any class or series of voting securities, and disclose whether the securities are owned both ofrecord and beneficially, of record only, or beneficially only.

(3) For any entity that is named in response to subsection (2), disclose the name of any person or company of whichthat entity is a "controlled entity".

(4) If any person or company named in respect of subsection (2) owns of record or beneficially, directly or indirectly,more than 10 percent of any class of voting securities of the principal distributor of the mutual fund, disclose thenumber and percentage of securities of the class so owned.

(5) Disclose the percentage of securities of each class or series of voting or equity securities beneficially owned, directlyor indirectly, in aggregate, by all the directors, senior officers and trustees

(a) of the mutual fund

(i) in the mutual fund if the aggregate level of ownership exceeds 10 percent,

(ii) in the manager, or

(iii) in any person or company that provides services to the mutual fund or the manager; and

(b) of the manager

(i) in the mutual fund if the aggregate level of ownership exceeds 10 percent,

(ii) in the manager, or

(iii) in any person or company that provides services to the mutual fund or the manager.

11.2 Affiliated Entities

(1) State whether any person or company that provides services to the mutual fund or the manager in relation to themutual fund is an affiliated entity of the manager, and show the relationships of those affiliated entities in the formof an appropriately labelled diagram.

(2) State that disclosure of the amount of fees received from the mutual fund by each person or company described insubsection (1) is contained in the audited financial statements of the mutual fund.

(3) Identify any individual who is a director or senior officer of the mutual fund or partner, director or officer of themanager and also of any affiliated entity of the manager described in response to subsection (1), and give particularsof the relationship.

INSTRUCTIONS:

(1) A person or company is an "affiliated entity" of another person or company if one is a subsidiary entity of the otheror if both are subsidiary entities of the same person or company or if each of them is a controlled entity of the sameperson or company.

(2) A person or company is a "controlled entity" of a person or company if

(a) in the case of a person or company

(i) voting securities of the first-mentioned person or company carrying more than 50 percent of the votesfor the election of directors are held, otherwise than by way of security only, by or for the benefit of theother person or company, and

(ii) the votes carried by the securities are entitled, if exercised, to elect a majority of the directors of the first-mentioned person or company;

(b) in the case of a partnership that does not have directors, other than a limited partnership, the second-mentioned person or company holds more than 50 percent of the interests in the partnership; or

(c) in the case of a limited partnership, the general partner is the second-mentioned person or company.

(3) A person or company is a "subsidiary entity" of another person or company if

(a) it is a controlled entity of

(i) that other,

(ii) that other and one or more persons or companies, each of which is a controlled entity of that other, or

(iii) two or more persons or companies, each of which is a controlled entity of that other; or

(b) it is a subsidiary entity of a person or company that is that other's subsidiary entity.

(4) For the purposes of subsection (1), the provision of services includes the provision of brokerage services in connectionwith execution of portfolio transactions for the mutual fund.

11.3 Dealer Manager Disclosure

If the mutual fund is dealer managed, disclose this fact and that the mutual fund is subject to the restrictions set out insection 4.1 of National Instrument 81-102, and summarize section 4.1 of National Instrument 81-102.

Item 12: Fund Governance

(1) Provide detailed information concerning the governance of the mutual fund, including information concerning

(a) whether the mutual fund has independent directors and trustees, an audit committee or an independentbusiness conduct review committee, and if so, the names and municipalities of each member of thatcommittee; and

(b) descriptions of the policies, practices or guidelines of the mutual fund or the manager relating to businesspractices, sales practices, risk management controls and internal conflicts of interest, and if the mutual fundor the manager have no such policies, practices or guidelines, a statement to that effect.

(2) If the mutual fund intends to use derivatives, describe the policies and practices of the mutual fund to manage therisks associated with the use of derivatives.

(3) In the disclosure provided under subsection (2), include disclosure of

(a) whether there are written policies and procedures in place that set out the objectives and goals for derivativestrading and the risk management procedures applicable to derivatives trading;

(b) who is responsible for setting and reviewing the policies and procedures referred to in paragraph (a), how oftenare the policies and procedures reviewed, and the extent and nature of the involvement of the board ofdirectors or trustee in the risk management process;

(c) whether there are trading limits or other controls on derivative trading in place and who is responsible forauthorizing the trading and placing limits or other controls on the trading;

(d) whether there are individuals or groups that monitor the risks independent of those who trade; and

(e) whether risk measurement procedures or simulations are used to test the portfolio under stress conditions.

INSTRUCTION:

The disclosure provided under this Item should make appropriate distinctions between the risks associated with the intendeduse by the mutual fund of derivatives for hedging purposes as against the mutual fund's intended use of derivatives for non-hedging purposes.

Item 13: Fees and Expenses

13.1 Management Fee Rebate or Distribution Programs

(1) Disclose details of all arrangements that are in effect or will be in effect during the currency of the annual informationform that will result, directly or indirectly, in one securityholder in the mutual fund paying as a percentage of thesecurityholder's investment in the mutual fund a management fee that differs from that payable by anothersecurityholder.

(2) In the disclosure required by subsection (1), describe

(a) who pays the management fee;

(b) whether a reduced fee is paid at the relevant time or whether the full fee is paid at that time with a repaymentof a portion of the management fee to follow at a later date;

(c) who funds the reduction or repayment of management fees, when the reduction or repayment is made andwhether it is made in cash or in securities of the mutual fund;

(d) whether the differing management fees are negotiable or calculated in accordance with a fixed schedule;

(e) if the management fees are negotiable, the factors or criteria relevant to the negotiations and state whonegotiates the fees with the investor;

(f) whether the differing management fees payable are based on the number or value of the securities of themutual fund purchased during a specified period or the number or value of the securities of the mutual fundheld at a particular time; and

(g) any other factors that could affect the quantum of the management fees payable.

(3) Disclose the income tax consequences to the mutual fund and its securityholders of a management fee structure thatresults in one securityholder paying a management fee that differs from another.

Item 14: Income Tax Considerations

(1) State in general terms the bases upon which the income and capital receipts of the mutual fund are taxed.

(2) State in general terms the income tax consequences to the holders of the securities offered of

(a) any distribution to the holders in the form of dividends or otherwise, including amounts reinvested in securitiesof the mutual fund;

(b) the redemption of securities;

(c) the issue of securities; and

(d) any transfers between mutual funds.

Item 15: Remuneration of Directors, Officers and Trustees

(1) If the management functions of the mutual fund are carried out by employees of the mutual fund, provide for thoseemployees the disclosure concerning executive compensation that is required to be provided for executive officersof an issuer under securities legislation.

(2) Describe any arrangements, including the amounts paid, the name of the individual and any expenses reimbursedby the mutual fund to the individual, under which compensation was paid or payable by the mutual fund during themost recently completed financial year of the mutual fund, for the services of directors of the mutual fund andmembers of an independent board of governors or advisory board of the mutual fund

(a) in that capacity, including any additional amounts payable for committee participation or special assignments;and

(b) as consultants or experts.

Item 16: Material Contracts

(1) List and provide particulars of

(a) the declaration of trust or trust agreement of the mutual fund, if any;

(b) any agreement of the mutual fund or trustee with the manager of the mutual fund;

(c) any agreement of the mutual fund, the manager or trustee with the portfolio adviser or portfolio advisers of themutual fund;

(d) any agreement of the mutual fund, the manager or trustee with the custodian of the mutual fund;

(e) any agreement of the mutual fund, the manager or trustee with the principal distributor of the mutual fund; and

(f) any other contract or agreement that can reasonably be regarded as material to an investor in the securitiesof the mutual fund.

(2) State a reasonable time at which and place where the contracts or agreements listed in response to subsection (1)may be inspected by prospective or existing securityholders.

(3) Include, in describing particulars of contracts, the date of, parties to, consideration and general nature of thecontracts.

INSTRUCTION:

This Item does not require disclosure of contracts entered into in the ordinary course of business of the mutual fund.

Item 17: Legal and Administrative Proceedings

(1) Describe briefly any ongoing legal and administrative proceedings material to the mutual fund, to which the mutualfund, its manager or principal distributor is a party.

(2) For all matters disclosed under subsection (1), disclose

(a) the name of the court or agency having jurisdiction;

(b) the date on which the proceeding was instituted;

(c) the principal parties to the proceeding;

(d) the nature of the proceeding and, if applicable, the amount claimed; and

(e) whether the proceedings are being contested and the present status of the proceedings.

(3) Provide similar disclosure about any proceedings known to be contemplated.

(4) If the manager of the mutual fund, or a director or officer of the mutual fund or the partner, director or officer of themanager of the mutual fund has, within the 10 years before the date of the simplified prospectus, been subject to anypenalties or sanctions imposed by a court or securities regulator relating to trading in securities, promotion ormanagement of a publicly traded mutual fund, or theft or fraud, or has entered into a settlement agreement with aregulatory authority in relation to any of these matters, describe the penalties or sanctions imposed and the groundson which they were imposed or the terms of the settlement agreement.

Item 18: Other Material Information

(1) Give particulars of any other material facts relating to the securities proposed to be offered that are not otherwiserequired to be disclosed by this Form or the SP Form.

(2) Provide any specific disclosure required or permitted to be disclosed in a prospectus under securities legislation thatis not otherwise required to be disclosed by this Form.

(3) Subsection (2) does not apply to requirements of securities legislation that are form requirements for a prospectus.

INSTRUCTION:

The disclosure provided under subsection (2) may also be provided under Item 12 of Part A or Item 14 of Part B of the SPForm. If the disclosure is provided under one of these Items, it need not be provided under this Item.

Item 19: Certificate of the Mutual Fund

(1) Include a certificate of the mutual fund that states:

"This annual information form, the financial statements of the fund [specify] for the financial period ended [specify]and the auditors' report on those financial statements, together with the simplified prospectus required to be sent ordelivered to a purchaser during the currency of this annual information form, constitute full, true and plain disclosureof all material facts relating to the securities offered by the simplified prospectus and do not contain anymisrepresentation."

(2) The certificate required to be signed by the mutual fund shall, if the mutual fund is established as a trust, be signed

(a) if any trustee of the mutual fund is an individual, by each individual who is a trustee or by a duly authorizedattorney of the individual; or

(b) if any trustee of the mutual fund is a body corporate, by the duly authorized signing officer or officers of thebody corporate.

(3) Despite subsection (3), if the declaration of trust or trust agreement establishing the mutual fund delegates theauthority to do so, or otherwise authorizes a person to do so, the certificate form required to be signed by the trusteeor trustees of the mutual fund may be signed by the person to whom the authority is delegated or who is authorized.

(4) Despite subsections (2) and (3), if the trustee of the mutual fund is also its manager, the certificate shall indicate thatit is being signed by the person or company both in its capacity of trustee and in its capacity as manager of themutual fund and shall be signed in the manner prescribed by Item 20.

Item 20: Certificate of the Manager of the Mutual Fund

(1) Include a certificate of the manager of the mutual fund in the same form as the certificate signed by the mutual fund.

(2) The certificate shall, if the manager is a company, be signed by the chief executive officer and the chief financialofficer of the manager, and on behalf of the board of directors of the manager by any two directors of the managerother than the chief executive officer or chief financial officer, duly authorized to sign.

(3) Despite subsection (3), if the manager has only three directors, two of whom are the chief executive officer and chieffinancial officer, the certificate required by subsection (2) to be signed on behalf of the board of directors of themanager shall be signed by the remaining director of the manager.

Item 21: Certificate of Each Promoter of the Mutual Fund

(1) Include a certificate of each promoter of the mutual fund in the same form as the certificate signed by the mutualfund.

(2) The certificate to be signed by the promoter shall be signed by any officer or director of the promoter duly authorizedto sign.

Item 22: Certificate of the Principal Distributor of the Mutual Fund

(1) Include a certificate of the principal distributor of the mutual fund that states:

"To the best of our knowledge, information and belief, this annual information form, the financial statements of thefund [specify] for the financial period ended [specify] and the auditors' report on those financial statements, togetherwith the simplified prospectus required to be sent or delivered to a purchaser during the currency of this annualinformation form, constitute full, true and plain disclosure of all material facts relating to the securities offered by thesimplified prospectus and do not contain any misrepresentation."

(2) The certificate to be signed by the principal distributor shall be signed by any officer or director of the principaldistributor duly authorized to sign.

INSTRUCTION:

For a mutual fund that has a principal distributor, the certificate required by this Item is necessary to satisfy the requirementsof securities legislation that an underwriter sign a certificate to a prospectus.

Item 23: Exemptions and Approvals

(1) Describe all exemptions from, or approvals under, this Instrument, National Instrument 81-102, National Instrument81-105 or National Policy Statement No. 39, obtained by the mutual fund or the manager that continue to be reliedupon by the mutual fund or the manager.

(2) Include the disclosure required by subsection (1) in the section of the annual information form that describes thematter to which the exemption pertains.

(3) Include disclosure about material breaches of securities legislation by the mutual fund or the manager in the lastcompleted financial year of the mutual fund.

Item 24: Back Cover

(1) State on the back cover the name of the mutual fund or funds included in the annual information form or the mutualfund family, as well as the name, address and telephone number of the manager of the mutual fund or funds.

(2) State, in substantially the following words:

" Additional information about the Fund[s] is available in the Fund['s/s'] financial statements.

You can get a copy of the Fund['s/s'] financial statements, including a statement of portfolio transactions, atno cost by calling [toll-free/collect] [insert toll-free telephone number or telephone number where collect callsare accepted, as required by section 3.4 of the Instrument], or from your dealer or by e-mail at [insert e-mailaddress].

The financial statements and other information about the Fund[s], such as information circulars and materialcontracts, are also available on the [insert name of mutual fund manager] Internet site at [insert fund's Internetsite] or at www.sedar.com."

 

Footnotes


 

1. In Ontario, at (1998) 21 OSCB 4817.

2. In Ontario, at (1997) 20 OSCB 559.

3. "Regulatory Strategies for the Mid-'90's - Recommendations for Regulating Investment Funds in Canada" prepared by Glorianne Strombergfor the Canadian Securities Administrators, January 1995.

4. See Part 16 of proposed National Instrument 81-102 Mutual Funds. Notice of Proposed Changes to National Instrument 81-102 andCompanion Policy 81-102CP Mutual Funds, Proposed National Instrument 81-102 Mutual Funds and Proposed Companion Policy 81-102CPwere released for a further 60-day comment period by the CSA on March 19, 1999. In Ontario at (1999) 22 OSCB (Supp).

5. Section 5.1 of proposed National Instrument 81-102 Mutual Funds. See footnote 4 above.

6. See Part 16 of proposed National Instrument 81-102 Mutual Funds. See footnote 4 above.

7. 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 Regulationin Saskatchewan and as a Policy in all other jurisdictions represented by the CSA, other than Quebec. The Commission des valeursmobilières du Québec (the "CVMQ") notes that its securities legislation provides for a specific simplified prospectus disclosure regime formutual fund disclosure. The CVMQ will be conducting a review of its securities legislation to determine how best it can integrate the disclosureregime proposed by the Instrument 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 incorporatethe disclosure obligations contained in proposed National Instrument 81-102 Mutual Funds ("NI81-102"), which replaces National PolicyStatement No. 39 ("NP39") and which was published for comment in June 1997 and again in March 1999. Those disclosure provisions havebeen deleted from NI81-102.

This is the second publication for comment of the proposed National Instrument, and amends the draft published in July 1998 (the "1998Draft"). Amendments to the 1998 Draft have been made as the result of comments received on that draft and as the result of furtherconsideration of this Instrument by the CSA. Substantive amendments from the 1998 Draft are discussed in the footnotes to this Instrument.Amendments from the 1998 Draft made only for clarification or drafting purposes are generally not discussed in the footnotes.

8. A national definition instrument has been adopted as National Instrument 14-101 Definitions. It contains definitions of certain terms used inmore than one national instrument. National Instrument 14-101 also provides that a term used in a national instrument and defined in thestatute relating to securities of the applicable jurisdiction, the definition of which is not restricted to a specific portion of the statute, will have themeaning in that jurisdiction given to it in that statute, unless the context otherwise requires. National Instrument 14-101 also provides that aprovision or a reference within a provision in a national instrument that specifically refers by name to a jurisdiction, other than the localjurisdiction, shall not have any effect in the local jurisdiction, unless otherwise stated in the provision.

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

10. The CSA have decided to continue to use the terminology in describing the basic disclosure documents of mutual funds currently used underNP36. Therefore, a "fund summary" under the 1998 Draft is called a "simplified prospectus" under this draft, and a "fund prospectus" underthe 1998 Draft is called an "annual information form" here. The CSA are proposing this approach for two reasons. First, the CSA believe thatthe mutual fund industry and investors are familiar with existing terminology. Second, the CSA are proposing a change in the structure of theannual information form in this Instrument and related forms from what was proposed for a fund prospectus in the 1998 Draft. A fundprospectus was conceived of as a complete prospectus document, one that could be read independently of a fund summary. The CSA havedecided to structure an annual information form as a document that supplements, without necessarily repeating information contained in, theprospectus. Therefore, the use of the term "simplified prospectus" is more appropriate than the term "fund summary" because the documentis not now a summary of a larger, complete document. The CSA are proposing this approach following consumer research on the 1998 Draftthat suggested that fund prospectuses (now annual information forms) may not receive wide distribution among investors, and that it wastherefore unnecessary to restructure the existing annual information form from the NP36 approach to accommodate wide circulation.

11. The definitions of "multiple AIF" and "multiple SP", and the related definitions of "single AIF" and "single SP" have been added in conjunctionwith amendments to this Instrument that will permit mutual fund organizations greater flexibility in preparing and distributing simplifiedprospectuses. Under this approach, mutual fund organizations may structure their simplified prospectuses so that they will be able to deliver toinvestors only fund-specific information that relates to mutual funds in which the investors have an interest. For a detailed explanation of thisapproach, see the Notice published with this Instrument and the General Instructions to Form 81-101F1.

The use of the words "multiple" and "single" in these definitions reflect the clarification made in this Instrument and the related Forms that asimplified prospectus or annual information form pertains to only one mutual fund. See subsection 4.1(1) of the Companion Policy for adiscussion of this issue.

12. The definitions of "Part A section" and "Part B section" have been added in conjunction with the amendments to this Instrument concerningpackaging. This Instrument, and Form 81-101F1, now contemplate that a simplified prospectus contains two parts: a Part A section, whichprovides introductory information about the mutual fund, general information about mutual funds and information applicable to mutual fundsmanaged by the mutual fund organization, and a Part B section, which contains specific information about the mutual fund to which thesimplified prospectus pertains.

13. This definition is new and is designed to provide some clarification of the meaning of the term "plain language", which was used but notdefined in the 1998 Draft.

14. 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.

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

16. Paragraph (b) of has been changed from the 1998 Draft to reflect the flexibility the CSA are proposing to allow a mutual fund organization inpreparing a simplified prospectus, particularly if the simplified prospectus for a mutual fund is being consolidated with simplified prospectusesfor other mutual funds into a multiple SP.

Part A section disclosure required by the simplified prospectus form, Form 81-101F1, pertains to generic disclosure about the mutual fundorganization and general information that may be applicable to all of the mutual funds in a mutual fund family. Part B disclosure pertains tospecific information concerning a mutual fund. Paragraph (b) requires the items under each of Part A and Part B to be presented in the orderstipulated under those Parts in Form 81-101F1. However, paragraph (c) permits the Part B section to be placed at any location in thesimplified prospectus. Therefore, it could be placed before the Part A section, somewhere in the middle of the Part A section or after the PartA section, except for the covers. These options are not relevant if, as now proposed to be permitted by the Part 5 section of this Instrument,the Part B section is bound separately from the Part A section.

17. The CSA are proposing to continue to permit educational material to be included in a simplified prospectus. The CSA have deleted section 4.2of the 1998 Draft from this Instrument. That section required that educational material be contained in sidebars or otherwise physicallyseparated from the mandated disclosure contained in a simplified prospectus, and close to the mandated disclosure to which it pertains. TheCSA recognize the usefulness to investors of educational material, and have deleted those requirements from this Instrument to allow mutualfund organizations more flexibility in preparing their documents. However, the CSA believe that some of the requirements contained in section4.2 of the 1998 Draft will generally constitute good practice, and recommend general adherence to those practices in section 5.4 of theCompanion Policy.

18. See subsection 4.1(3) of the Companion Policy for a discussion of the term "substantially similar".

19. Subsection (2) provides a mutual fund organization with the ability to physically separate the Part A section of a multiple SP, which containsgeneral information, from the Part B sections, each of which contains information about a specific mutual fund. If the Part B sections arebound separately, then all of the Part B sections of the multiple SP must be bound separately from the Part A section. Flexibility is provided inparagraph (b), which permits a mutual fund organization to combine Part B sections as it sees fit. So, the fund-specific information for eachmutual fund could be provided separately to an investor, or packages containing all or some of the fund-specific information about mutualfunds could be combined.

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

21. The CSA have added section 7.3 as a transitional provision in recognition of the fact that the blacklining of a document prepared under thisInstrument to one prepared under NP36 will have no utility.

22. Proposed National Policy 43-201 was published for comment by the CSA in June 1998 (in Ontario, at (1998), 21 OSCB 3889). It is expectedthat an Appendix to that proposed National Policy will contain an appendix listing the documents to be filed or delivered under NationalInstrument 81-101; this appendix will replace the lists of documents now contained in National Policy Statement No. 1.

23. The Commission des valeurs mobilières du Québec will be conducting a review of its securities legislation to determine how best it canintegrate the disclosure regime proposed by the Instrument with the mandated mutual fund prospectus disclosure regime.

24. This subsection is new, and has been included in response to the recent development of guaranteed or insured mutual funds. This subsectioncorresponds to the mutual fund advertising rules contained in subsection 15.4(10) of proposed National Instrument 81-102.

25. This requirement was in section 16.1 of the draft NI81-102 published in 1997, and has been deleted from NI81-102.

26. The performance data required to be disclosed under this Item is to be derived in accordance with the requirements contained in NI81-102.Those provisions have been revised as necessary in order to be consistent with the proposed Instrument and this Form. In addition, the rulesfor calculating management expense ratio have been moved into NI81-102 from the proposed Instrument, and appropriate changes made tothe performance data rules in NI81-102 to reflect the approach taken in the proposed Instrument regarding the calculation of the managementexpense ratio.

27. Paragraph 15.6(a) of NI81-102 prohibits a mutual fund from including performance data in sales communications unless the mutual fund hasoffered securities under a prospectus or simplified prospectus in a jurisdiction for at least one completed financial year.

28. This subsection is based on the disclosure requirements of Ontario Securities Commission Policy 1.9 Use by Dealers of BrokerageCommissions as Payment for Goods or Services other than Order Execution Services ("Soft Dollar" Deals).