“advertisement” means a sales communication that is published or designed for use on or through a public medium;
National Instrument 81-102 Investment Funds
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
alternative mutual fund
“alternative mutual fund” means a mutual fund, other than a precious metals fund, that has adopted fundamental investment objectives that permit it to invest in physical commodities or specified derivatives, to borrow cash or engage in short selling in a manner not permitted for other mutual funds under this Instrument;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
asset allocation service
“asset allocation service” means an administrative service under which the investment of a person or company is allocated, in whole or in part, among mutual funds to which this Instrument applies and reallocated among those mutual funds and, if applicable, other assets according to an asset allocation strategy;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
book-based system
“book-based system” means a system for the central handling of securities or equivalent bookbased entries under which all securities of a class or series deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
borrowing agent
“borrowing agent” means any of the following:
(a) a custodian or sub-custodian that holds assets in connection with a short sale of securities by an investment fund;
(b) a qualified dealer from whom an investment fund borrows securities in order to sell them short;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
cash cover
“cash cover” means any of the following assets of an investment fund that are held by the investment fund, have not been allocated for specific purposes and are available to satisfy all or part of the obligations arising from a position in specified derivatives held by the investment fund or from a short sale of securities made by the investment fund:
(a) cash;
(b) cash equivalents;
(c) synthetic cash;
(d) receivables of the mutual fund arising from the disposition of portfolio assets, net of payables arising from the acquisition of portfolio assets;
(e) securities purchased by the mutual fund in a reverse repurchase transaction under section 2.14, to the extent of the cash paid for those securities by the mutual fund;
(f) each evidence of indebtedness that has a remaining term to maturity of 365 days or less and a – 2 – designated rating;
(g) each floating rate evidence of indebtedness if
(i) the floating interest rate of the indebtedness is reset no later than every 185 days, and
(ii) the principal amount of the indebtedness will continue to have a market value of approximately par at the time of each change in the rate to be paid to the holders of the evidence of indebtedness;
(h) securities issued by a money market fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
cash equivalent
“cash equivalent” means an evidence of indebtedness that has a remaining term to maturity of 365 days or less and that is issued, or fully and unconditionally guaranteed as to principal and interest, by
(a) the government of Canada or the government of a jurisdiction,
(b) the government of the United States of America, the government of one of the states of the United States of America, the government of another sovereign state or a permitted supranational agency, if, in each case, the evidence of indebtedness has a designated rating, or
(c) a Canadian financial institution, or a financial institution that is not incorporated or organized under the laws of Canada or of a jurisdiction if, in either case, evidences of indebtedness of that issuer or guarantor that are rated as short term debt by a designated rating organization or its DRO affiliate have a designated rating;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
cleared specified derivative
“cleared specified derivative” means a bilateral specified derivative that is accepted for clearing by a regulated clearing agency;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
clearing corporation
“clearing corporation” means an organization through which trades in specified derivatives are cleared and settled;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
clearing corporation option
“clearing corporation option” means an option, other than an option on futures, issued by a clearing corporation;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
clone fund
“clone fund” means an investment fund that has adopted a fundamental investment objective to track the performance of another investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
conventional convertible security
“conventional convertible security” means a security of an issuer that is, according to its terms, convertible into, or exchangeable for, other securities of the issuer, or of an affiliate of the issuer;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
conventional floating rate debt instrument
“conventional floating rate debt instrument” means an evidence of indebtedness of which the interest obligations are based upon a benchmark commonly used in commercial lending arrangements;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
conventional warrant or right
“conventional warrant or right” means a security of an issuer, other than a clearing corporation, that gives the holder the right to purchase securities of the issuer or of an affiliate of the issuer;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
currency cross hedge
“currency cross hedge” means the substitution by an investment fund of a risk to one currency for a risk to another currency, if neither currency is a currency in which the investment fund determines its net asset value per security and the aggregate amount of currency risk to which the investment fund is exposed is not increased by the substitution;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
custodian
“custodian” means the institution appointed by an investment fund to hold portfolio assets of the investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
dealer managed investment fund
“dealer managed investment fund” means an investment fund the portfolio adviser of which is a dealer manager;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
dealer manager
“dealer manager” means
(a) a specified dealer that acts as a portfolio adviser,
(b) a portfolio adviser in which a specified dealer, or a partner, director, officer, salesperson or principal shareholder of a specified dealer, directly or indirectly owns of record or beneficially, or exercises control or direction over, securities carrying more than 10 percent of the total votes attaching to securities of the portfolio adviser, or
(c) a partner, director or officer of a portfolio adviser referred to in paragraph (b);
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
debt-like security
“debt-like security” means a security purchased by a mutual fund, other than a conventional convertible security or a conventional floating rate debt instrument, that evidences an indebtedness of the issuer if
(a) either
(i) the amount of principal, interest or principal and interest to be paid to the holder is linked in whole or in part by a formula to the appreciation or depreciation in the market price, value or level of one or more underlying interests on a predetermined date or dates, or
(ii) the security provides the holder with a right to convert or exchange the security into or for the underlying interest or to purchase the underlying interest, and
(b) on the date of acquisition by the mutual fund, the percentage of the purchase price attributable to the component of the security that is not linked to an underlying interest is less than 80 percent of the purchase price paid by the mutual fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
delta
“delta” means the positive or negative number that is a measure of the change in market value of an option relative to changes in the value of the underlying interest of the option;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
designated rating
“designated rating” means,
(a) for the purposes of paragraph 4.1 (4)(b), a designated rating under paragraph (b) of the definition of “designated rating” in National Instrument 44-101 Short Form Prospectus Distributions, or
(b) except as described in paragraph (a), a credit rating from a designated rating organization listed below, from a DRO affiliate of an organization listed below, from a designated rating organization that is a successor credit rating organization of an organization listed below or from a DRO affiliate of such successor credit rating organization, that is at or above one of the following corresponding rating categories, or that is at or above a category that replaces one of the following corresponding rating categories, if
(i) there has been no announcement from the designated rating organization, from a DRO affiliate of the organization, from a designated rating organization that is a successor credit rating organization or from a DRO affiliate of such successor credit rating organization, of which the investment fund or its manager is or reasonably should be aware that the credit rating of the security or instrument to which the designated rating was given may be down-graded to a rating category that would not be a designated rating, and
(ii) no designated rating organization listed below, no DRO affiliate of an organization listed below, no designated rating organization that is a successor credit rating organization of an organization listed below and no DRO affiliate of such successor credit rating organization, has rated the security or instrument in a rating category that is not a designated rating:
Designated Rating Organization | Commercial Paper/Short Term Debt | Long Term Debt |
DBRS Limited | R-1 (low) | A |
Fitch Ratings, Inc. | F1 | A |
Moody’s Canada Inc. | P-1 | A2 |
S&P Global Ratings Canada | A-1 (Low) | A |
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
designated rating organization
“designated rating organization” means, if designated under securities legislation, any of
(a) DBRS Limited, Fitch Ratings, Inc., Moody’s Canada Inc. or S&P Global Ratings Canada, or
(b) a successor credit rating organization of a credit rating organization listed in paragraph (a);
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
DRO affiliate
“DRO affiliate” has the same meaning as in section 1 of National Instrument 25-101 Designated Rating Organizations;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
equivalent debt
“equivalent debt” means, in relation to an option, swap, forward contract or debt-like security, an evidence of indebtedness of approximately the same term as, or a longer term than, the remaining term to maturity of the option, swap, contract or debt-like security and that ranks equally with, or subordinate to, the claim for payment that may arise under the option, swap, contract or debt-like security;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
fixed portfolio investment fund
“fixed portfolio investment fund” means an exchange-traded mutual fund not in continuous distribution or a non-redeemable investment fund that
(a) has fundamental investment objectives that include holding and maintaining a fixed portfolio of publicly traded equity securities of one or more issuers the names of which are disclosed in its prospectus, and
(b) trades the securities referred to in paragraph (a) only in the circumstances disclosed in its prospectus;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
floating rate evidence of indebtedness
“floating rate evidence of indebtedness” means an evidence of indebtedness that has a floating rate of interest determined over the term of the obligation by reference to a commonly used benchmark interest rate and that satisfies any of the following:
(a) if the evidence of indebtedness was issued by a person or company other than a government or a permitted supranational agency, it has a designated rating;
(b) the evidence of indebtedness was issued, or is fully and unconditionally guaranteed as to principal and interest, by any of the following:
(i) the government of Canada or the government of a jurisdiction of Canada;
(ii) the government of the United States of America, the government of one of the states of the United States of America, the government of another sovereign state or a permitted supranational agency, if, in each case, the evidence of indebtedness has a designated rating;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
forward contract
“forward contract” means an agreement, not entered into with, or traded on, a stock exchange or futures exchange or cleared by a clearing corporation, to do one or more of the following on terms or at a price established by or determinable by reference to the agreement and at or by a time in the future established by or determinable by reference to the agreement:
(1) Make or take delivery of the underlying interest of the agreement.
(2) Settle in cash instead of delivery;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
fundamental investment objectives
“fundamental investment objectives” means the investment objectives of an investment fund that define both the fundamental nature of the investment fund and the fundamental investment features of the investment fund that distinguish it from other investment funds;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
futures exchange
“futures exchange” means an association or organization operated to provide the facilities necessary for the trading of standardized futures;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
government security
“government security” means an evidence of indebtedness issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada, the government of a jurisdiction or the government of the United States of America;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
guaranteed mortgage
“guaranteed mortgage” means a mortgage fully and unconditionally guaranteed, or insured, by the government of Canada, by the government of a jurisdiction or by an agency of any of those governments or by a corporation approved by the Office of the Superintendent of Financial Institutions to offer its services to the public in Canada as an insurer of mortgages;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
hedging
“hedging” means the entering into of a transaction, or a series of transactions, and the maintaining of the position or positions resulting from the transaction or series of transactions
(a) if
(i) the intended effect of the transaction, or the intended cumulative effect of the series of transactions, is to offset or reduce a specific risk associated with all or a portion of an existing investment or position or group of investments or positions,
(ii) the transaction or series of transactions results in a high degree of negative correlation between changes in the value of the investment or position, or group of investments or positions, being hedged and changes in the value of the instrument or instruments with which the investment or position is hedged, and
(iii) there are reasonable grounds to believe that the transaction or series of transactions no more than offset the effect of price changes in the investment or position, or group of investments or positions, being hedged, or
(b) if the transaction, or series of transactions, is a currency cross hedge;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
IIROC
“IIROC” means the Investment Industry Regulatory Organization of Canada;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
illiquid asset
“illiquid asset” means
(a) a portfolio asset that cannot be readily disposed of through market facilities on which public quotations in common use are widely available at an amount that at least approximates the amount at which the portfolio asset is valued in calculating the net asset value per security of the investment fund, or
(b) a restricted security held by an investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
independent review committee
“independent review committee” means the independent review committee of the investment fund established under National Instrument 81-107 Independent Review Committee for Investment Funds;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
index mutual fund
“index mutual fund” means a mutual fund that has adopted fundamental investment objectives that require the mutual fund to
(a) hold the securities that are included in a permitted index or permitted indices of the mutual fund in substantially the same proportion as those securities are reflected in that permitted index or those permitted indices, or
(b) invest in a manner that causes the mutual fund to replicate the performance of that permitted index or those permitted indices;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
index participation unit
“index participation unit” means a security traded on a stock exchange in Canada or the United States and issued by an issuer the only purpose of which is to
(a) hold the securities that are included in a specified widely quoted market index in substantially the same proportion as those securities are reflected in that index, or
(b) invest in a manner that causes the issuer to replicate the performance of that index;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
investment fund conflict of interest investment restrictions
“investment fund conflict of interest investment restrictions” means the provisions of securities legislation that are referred to in Appendix D;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
investment fund conflict of interest reporting requirements
“investment fund conflict of interest reporting requirements” means the provisions of securities legislation that are referred to in Appendix E;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
investor fees
“investor fees” means, in connection with the purchase, conversion, holding, transfer or redemption of securities of an investment fund, all fees, charges and expenses that are or may become payable by a securityholder of the investment fund to,
(a) in the case of a mutual fund, a member of the organization of the mutual fund other than a member of the organization acting solely as a participating dealer, and
(b) in the case of a non-redeemable investment fund, the manager of the non-redeemable investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
long position
“long position” means a position held by an investment fund that, for
(a) an option, entitles the investment fund to elect to purchase, sell, receive or deliver the underlying interest or, instead, pay or receive cash,
(b) a standardized future or forward contract, obliges the investment fund to accept delivery of the underlying interest or, instead, pay or receive cash,
(c) a call option on futures, entitles the investment fund to elect to assume a long position in standardized futures,
(d) a put option on futures, entitles the investment fund to elect to assume a short position in standardized futures, and
(e) a swap, obliges the investment fund to accept delivery of the underlying interest or receive cash;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
management expense ratio
“management expense ratio” means the ratio, expressed as a percentage, of the expenses of an investment fund to its average net asset value, calculated in accordance with Part 15 of National Instrument 81-106 Investment Fund Continuous Disclosure;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
manager-prescribed number of units
“manager-prescribed number of units” means, in relation to an exchange-traded mutual fund that is in continuous distribution, the number of units determined by the manager from time to time for the purposes of subscription orders, exchanges, redemptions or for other purposes;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
member of the organization
“member of the organization” has the meaning ascribed to that term in National Instrument 81-105 Mutual Fund Sales Practices;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
MFDA
“MFDA” means the Mutual Fund Dealers Association of Canada;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
money market fund
“money market fund” means a mutual fund that invests its assets in accordance with section 2.18;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
mortgage
“mortgage” includes a hypothec or security that creates a charge on real property in order to secure a debt;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
mutual fund rating entity
“mutual fund rating entity” means an entity
(a) that rates or ranks the performance of mutual funds or asset allocation services through an objective methodology that is
(i) based on quantitative performance measurements,
(ii) applied consistently to all mutual funds or asset allocation services rated or ranked by it, and
(iii) disclosed on the entity’s website,
(b) that is not a member of the organization of any mutual fund, and
(c) whose services to assign a rating or ranking to any mutual fund or asset allocation service are not procured by the promoter, manager, portfolio adviser, principal distributor or participating dealer of any mutual fund or asset allocation service, or any of their affiliates;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
net asset value
“net asset value” means the value of the total assets of the investment fund less the value of the total liabilities, other than net assets attributable to securityholders, of the investment fund, as at a specific date, determined in accordance with Part 14 of National Instrument 81-106 Investment Fund Continuous Disclosure;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
non-resident sub-adviser
“non-resident sub-adviser” means a person or company providing portfolio management advice
(a) whose principal place of business is outside of Canada,
(b) that advises a portfolio adviser to an investment fund, and
(c) that is not registered under securities legislation in the jurisdiction in which the portfolio adviser that it advises is located;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
option
“option” means an agreement that provides the holder with the right, but not the obligation, to do one or more of the following on terms or at a price established by or determinable by reference to the agreement at or by a time established by the agreement:
(1) Receive an amount of cash determinable by reference to a specified quantity of the underlying interest of the option.
(2) Purchase a specified quantity of the underlying interest of the option.
(3) Sell a specified quantity of the underlying interest of the option;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
option on futures
“option on futures” means an option the underlying interest of which is a standardized future;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
order receipt office
“order receipt office” means, for a mutual fund
(a) the principal office of the mutual fund,
(b) the principal office of the principal distributor of the mutual fund, or
(c) a location to which a purchase order or redemption order for securities of the mutual fund is required or permitted by the mutual fund to be delivered by participating dealers or the principal distributor of the mutual fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
overall rating or ranking
“overall rating or ranking” means a rating or ranking of a mutual fund or asset allocation service that is calculated from standard performance data for one or more performance measurement periods, which includes the longest period for which the mutual fund or asset allocation service is required under securities legislation to calculate standard performance data, other than the period since the inception of the mutual fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
participating dealer
“participating dealer” means a dealer other than the principal distributor that distributes securities of a mutual fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
participating fund
“participating fund” means a mutual fund in which an asset allocation service permits investment;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
performance data
“performance data” means a rating, ranking, quotation, discussion or analysis regarding an aspect of the investment performance of an investment fund, an asset allocation service, a security, an index or a benchmark;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
permitted index
“permitted index” means, in relation to a mutual fund, a market index that is
(a) both
(i) administered by an organization that is not affiliated with any of the mutual fund, its manager, its portfolio adviser or its principal distributor, and
(ii) available to persons or companies other than the mutual fund, or
(b) widely recognized and used;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
permitted precious metal
“permitted precious metal” means gold, silver, platinum or palladium;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
permitted precious metal certificate
“permitted precious metal certificate” means a certificate representing a permitted precious metal if the permitted precious metal is held in Canada in the form of bars or wafers and is
(a) available for delivery in Canada, free of charge, to or to the order of the holder of the certificate,
(b) in the case of a certificate representing gold, of a minimum fineness of 995 parts per 1000,
(c) in the case of a certificate representing silver, platinum or palladium, of a minimum fineness of 999 parts per 1000, and
(d) if not purchased from a bank listed in Schedule I, II or III of the Bank Act (Canada), fully insured against loss and bankruptcy by an insurance company licensed under the laws of Canada or a jurisdiction;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
permitted supranational agency
“permitted supranational agency” means the African Development Bank, the Asian Development Bank, the Caribbean Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the International Bank for Reconstruction and Development and the International Finance Corporation;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
physical commodity
“physical commodity”, means, electricity, water, or, in an original or processed state, an agricultural product, forest product, product of the sea, mineral, metal, hydrocarbon fuel product, precious stone or other gem;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
portfolio adviser
“portfolio adviser” means a person or company that provides investment advice or portfolio management services under a contract with the investment fund or with the manager of the investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
portfolio asset
“portfolio asset” means an asset of an investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
precious metals fund
“precious metals fund” means a mutual fund that has adopted a fundamental investment objective to invest primarily in one or more permitted precious metals;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
pricing date
“pricing date” means, for the sale of a security of a mutual fund, the date on which the net asset value per security of the mutual fund is calculated for the purpose of determining the price at which that security is to be issued;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
principal distributor
“principal distributor” means a person or company through whom securities of a mutual fund are distributed under an arrangement with the mutual fund or its manager that provides
(a) an exclusive right to distribute the securities of the mutual fund in a particular area, or
(b) a feature that gives or is intended to give the person or company a material competitive advantage over others in the distribution of the securities of the mutual fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
public quotation
“public quotation” includes, for the purposes of calculating the amount of illiquid assets held by an investment fund, any quotation of a price for any of the following:
(a) a fixed income security made through the inter-dealer bond market;
(b) a foreign currency forward or foreign currency option in the interbank market;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
purchase
“purchase” means, in connection with an acquisition of a portfolio asset by an investment fund, an acquisition that is the result of a decision made and action taken by the investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
qualified security
“qualified security” means
(a) an evidence of indebtedness that is issued, or fully and unconditionally guaranteed as to principal and interest, by
(i) the government of Canada or the government of a jurisdiction,
(ii) the government of the United States of America, the government of one of the states of the United States of America, the government of another sovereign state, or a permitted supranational agency, if, in each case, the evidence of indebtedness has a designated rating, or
(iii) a Canadian financial institution or a financial institution that is not incorporated or organized under the laws of Canada or of a jurisdiction if, in either case, evidences of indebtedness of that issuer or guarantor that are rated as short term debt by a designated rating organization or its DRO affiliate have a designated rating, or
(b) commercial paper that has a term to maturity of 365 days or less and an approved credit rating and that was issued by a person or company other than a government or permitted supranational agency;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
regulated clearing agency
“regulated clearing agency” has the meaning ascribed to that term in National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
report to securityholders
“report to securityholders” means a report that includes annual financial statements or interim financial reports, or an annual or interim management report of fund performance, and that is delivered to securityholders of an investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
restricted security
“restricted security” means a security, other than a specified derivative, the resale of which is restricted or limited by a representation, undertaking or agreement by the investment fund or by the investment fund’s predecessor in title, or by law;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
sales communication
“sales communication” means a communication relating to, and by, an investment fund or asset allocation service, its promoter, manager, portfolio adviser, principal distributor, a participating dealer or a person or company providing services to any of them, that
(a) is made
(i) to a securityholder of the investment fund or participant in the asset allocation service, or
(ii) to a person or company that is not a securityholder of the investment fund or participant in the asset allocation service, to induce the purchase of securities of the investment fund or the use of the asset allocation service, and
(b) in the case of an investment fund, is not contained in any of the following documents of the investment fund:
1. A prospectus or preliminary or pro forma prospectus.
2. An annual information form or preliminary or pro forma annual information form.
3. A fund facts document or preliminary or pro forma fund facts document.
4. Financial statements, including the notes to the financial statements and the auditor’s report on the financial statements.
5. A trade confirmation.
6. A statement of account.
7. Annual or interim management report of fund performance;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
short position
“short position” means a position held by an investment fund that, for
(a) an option, obliges the investment fund, at the election of another, to purchase, sell, receive or deliver the underlying interest, or, instead, pay or receive cash,
(b) a standardized future or forward contract, obliges the investment fund, at the election of another, to deliver the underlying interest or, instead, pay or receive cash,
(c) a call option on futures, obliges the investment fund, at the election of another, to assume a short position in standardized futures, and
(d) a put option on futures, obliges the investment fund, at the election of another, to assume a long position in standardized futures;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
special warrant
“special warrant” means a security that, by its terms or the terms of an accompanying contractual obligation, entitles or requires the holder to acquire another security without payment of material additional consideration and obliges the issuer of the special warrant or the other security to undertake efforts to file a prospectus to qualify the distribution of the other security;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
specified asset-backed security
“specified asset-backed security” means a security that
(a) is primarily serviced by the cash flows of a discrete pool of receivables or other financial assets, either fixed or revolving, that by their terms convert into cash within a finite time, and any rights or assets designed to assure the servicing or timely distribution of proceeds to securityholders, and
(b) by its terms entitles an investor in that security to a return of the investment of that investor at or by a time established by or determinable by reference to an agreement, except as a result of losses incurred on, or the non-performance of, the financial assets;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
specified dealer
“specified dealer” means a dealer other than a dealer whose activities as a dealer are restricted by the terms of its registration to one or both of
(a) acting solely in respect of mutual fund securities;
(b) acting solely in respect of transactions in which a person or company registered in the category of exempt market dealer in a jurisdiction is permitted to engage;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
specified derivative
“specified derivative” means an instrument, agreement or security, the market price, value or payment obligations of which are derived from, referenced to or based on an underlying interest, other than
(a) a conventional convertible security,
(b) a specified asset-backed security,
(c) an index participation unit,
(d) a government or corporate strip bond,
(e) a capital, equity dividend or income share of a subdivided equity or fixed income security,
(f) a conventional warrant or right, or
(g) a special warrant;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
standardized future
“standardized future” means an agreement traded on a futures exchange pursuant to standardized conditions contained in the by-laws, rules or regulations of the futures exchange, and cleared by a clearing
corporation, to do one or more of the following at a price established by or determinable by reference to the agreement and at or by a time established by or determinable by reference to the agreement:
(1) Make or take delivery of the underlying interest of the agreement.
(2) Settle the obligation in cash instead of delivery of the underlying interest;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
sub-custodian
“sub-custodian” means, for an investment fund, an entity that has been appointed to hold portfolio assets of the investment fund in accordance with section 6.1 by either the custodian or a subcustodian of the investment fund;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
successor credit rating organization
“successor credit rating organization” means, with respect to a credit rating organization, any credit rating organization that succeeded to or otherwise acquired all or substantially all of another credit rating organization’s business in Canada, whether through a restructuring transaction or otherwise, if that business was, at any time, owned by the first-mentioned credit rating organization;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
swap
“swap” means an agreement that provides for
(a) an exchange of principal amounts,
(b) the obligation to make, and the right to receive, cash payments based upon the value, level or price, or on relative changes or movements of the value, level or price, of one or more underlying interests, which payments may be netted against each other, or
(c) the right or obligation to make, and the right or obligation to receive, physical delivery of an underlying interest instead of the cash payments referred to in paragraph (b);
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
synthetic cash
“synthetic cash” means a position that in aggregate provides the holder with the economic equivalent of the return on a banker’s acceptance accepted by a bank listed in Schedule I of the Bank Act (Canada) and that consists of
(a) a long position in a portfolio of shares and a short position in a standardized future of which the underlying interest consists of a stock index, if
(i) there is a high degree of positive correlation between changes in the value of the portfolio of shares and changes in the value of the stock index, and
(ii) the ratio between the value of the portfolio of shares and the standardized future is such that, for any change in the value of one, a change of similar magnitude occurs in the value of the other,
(b) a long position in the evidences of indebtedness issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada or the government of a jurisdiction and a short position in a standardized future of which the underlying interest consists of evidences of indebtedness of the same issuer and same term to maturity, if
(i) there is a high degree of positive correlation between changes in the value of the portfolio of evidences of indebtedness and changes in the value of the standardized future, and
(ii) the ratio between the value of the evidences of indebtedness and the standardized future is such that, for any change in the value of one, a change of similar magnitude occurs in the value of the other; or
(c) a long position in securities of an issuer and a short position in a standardized future of which the underlying interest is securities of that issuer, if the ratio between the value of the securities of that issuer and the position in the standardized future is such that, for any change in the value of one, a change of similar magnitude occurs in the value of the other;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
underlying interest
“underlying interest” means, for a specified derivative, the security, commodity, financial instrument, currency, interest rate, foreign exchange rate, economic indicator, index, basket, agreement, benchmark or any other reference, interest or variable, and, if applicable, the relationship between any of the foregoing, from, to or on which the market price, value or payment obligation of the specified derivative is derived, referenced or based;
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.1 Definitions
underlying market exposure
“underlying market exposure” means, for a position of an investment fund in
(a) an option, the quantity of the underlying interest of the option position multiplied by the market value of one unit of the underlying interest, multiplied, in turn, by the delta of the option,
(b) a standardized future or forward contract, the quantity of the underlying interest of the position multiplied by the current market value of one unit of the underlying interest; or
(c) a swap, the underlying market exposure, as calculated under paragraph
(b), for the long position of the investment fund in the swap.
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.2
Application
(1) This Instrument applies only to
(a) a mutual fund that offers or has offered securities under a prospectus for so long as the mutual fund remains a reporting issuer,
(a.1) a non-redeemable investment fund that is a reporting issuer, and
(b) a person or company in respect of activities pertaining to an investment fund referred to in paragraphs (a) and (a.1) or pertaining to the filing of a prospectus to which subsection 3.1(1) applies.
(2) Despite subsection (1), this Instrument does not apply to a scholarship plan.
(3) Despite subsection (1), in Québec, in respect of investment funds organized under an Act to establish the Fonds de solidarité des travailleurs du Québec (F.T.Q.) (chapter F-3.2.1), an Act to establish Fondaction, le Fonds de développement de la Confédération des syndicats nationaux pour la coopération et l’emploi (chapter F-3.1.2), or an Act constituting Capital régional et coopératif Desjardins (chapter C-6.1), the following requirements apply:
(a) section 2.6.1 and sections 2.7 to 2.17;
(b) Part 6;
(c) Part 15, except for paragraph 15.8(2)(b);
(d) Part 19;
(e) Part 20.
(4) For greater certainty, in British Columbia, if a provision of this Instrument conflicts or is inconsistent with a provision of the Employee Investment Act (British Columbia) or the Small Business Venture Capital Act (British Columbia), the provision of the Employee Investment Act or the Small Business Venture Capital Act, as the case may be, prevails.
(5) Despite paragraph (1)(a.1), the following provisions do not apply to a non-redeemable investment fund that was established before October 4, 2018, unless the fund has filed a prospectus for which a receipt was issued after that date:
(a) sections 2.1 and 2.4;
(b) paragraphs 2.6(1)(a), (b) and (c), and subsection 2.6(2);
National Instrument 81-102 Investment Funds
Part 1 Definitions and Application
Section 1.3
Interpretation
(1) Each section, part, class or series of a class of securities of an investment fund that is referable to a separate portfolio of assets is considered to be a separate investment fund for purposes of this Instrument.
(2) An investment fund that renews or extends a securities lending, repurchase or reverse repurchase transaction is entering into a securities lending, repurchase or reverse repurchase agreement for the purposes of section 2.12, 2.13 or 2.14.
(3) [Repealed]
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.1
Concentration Restriction
(1) A mutual fund, other than an alternative mutual fund, must not purchase a security of an issuer, enter into a specified derivatives transaction or purchase an index participation unit if, immediately after the transaction, more than 10% of its net asset value would be invested in securities of any one issuer.
(1.1) An alternative mutual fund or a non-redeemable investment fund must not purchase a security of an issuer, enter into a specified derivatives transaction or purchase an index participation unit if, immediately after the transaction, more than 20% of its net asset value would be invested in securities of any one issuer.
(2) Subsections (1) and (1.1) do not apply to the purchase of any of the following:
(a) a government security;
(b) a security issued by a clearing corporation;
(c) a security issued by an investment fund if the purchase is made in accordance with the requirements of section 2.5;
(d) an index participation unit that is a security of an investment fund;
(e) an equity security if the purchase is made by a fixed portfolio investment fund in accordance with its investment objectives.
(3) For the purposes of this section, for each long position in a specified derivative that is held by an investment fund for a purpose other than hedging and for each index participation unit held by the investment fund, the investment fund is considered to hold directly the underlying interest of that specified derivative or its proportionate share of the securities held by the issuer of the index participation unit.
(4) Despite subsection (3), for the purposes of this section, an investment fund is considered to not hold a security or instrument if that security or instrument is a component of, but represents less than 10% of,
(a) a stock or bond index that is the underlying interest of a specified derivative, or
(b) the securities held by the issuer of an index participation unit.
(5) Despite subsection (1), an index mutual fund, the name of which includes the word “index”, may, in order to satisfy its fundamental investment objectives, purchase a security, enter into a specified derivatives transaction or purchase index participation units if its prospectus contains the disclosure referred to in subsection (5) of Item 6 and subsection (5) of Item 9 of Part B of Form 81-101F1 Contents of Simplified Prospectus.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.2
Control Restrictions
(1) An investment fund must not purchase a security of an issuer
(a) if, immediately after the purchase, the investment fund would hold securities representing more than 10% of
(i) the votes attaching to the outstanding voting securities of the issuer; or
(ii) the outstanding equity securities of the issuer; or
(b) for the purpose of exercising control over, or management of, the issuer.
(1.1) Subsection (1) does not apply to the purchase of any of the following:
(a) a security issued by an investment fund if the purchase is made in accordance with section 2.5;
(b) an index participation unit that is a security of an investment fund.
(2) If an investment fund acquires a security of an issuer other than as the result of a purchase, and the acquisition results in the investment fund exceeding the limits described in paragraph (1)(a), the investment fund must as quickly as is commercially reasonable, and in any event no later than 90 days after the acquisition, reduce its holdings of those securities so that it does not hold securities exceeding those limits.
(3) In determining its compliance with the restrictions contained in this section, an investment fund must
(a) assume the conversion of special warrants held by it; and
(b) consider that it holds directly the underlying securities represented by any American depositary receipts held by it.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.3
Restrictions Concerning Types of Investments
(1) A mutual fund must not do any of the following:
(a) purchase real property;
(b) purchase a mortgage, other than a guaranteed mortgage;
(c) purchase a guaranteed mortgage if, immediately after the purchase, more than 10% of its net asset value would be made up of guaranteed mortgages;
(d) purchase a precious metal certificate, other than a permitted precious metal certificate;
(e) purchase a permitted precious metal, a permitted precious metal certificate or a specified derivative of which the underlying interest is a physical commodity if, immediately after the purchase, more than 10% of the mutual fund’s net asset value would be made up of permitted precious metals, permitted precious metal certificates or specified derivatives of which the underlying interests are physical commodities;
(f) purchase a physical commodity, except to the extent permitted by paragraph (d) or (e);
(g) purchase, sell or use a specified derivative other than in compliance with sections 2.7 to 2.11;
(h) [repealed]
(i) purchase an interest in a loan syndication or loan participation if the purchase would require the mutual fund to assume any responsibilities in administering the loan in relation to the borrower.
(1.1) Paragraphs (1) (d), (e) and (f) do not apply to an alternative mutual fund.
(1.2) Paragraph (1) (e) does not apply to a precious metals fund with respect to purchasing a permitted precious metal, a permitted precious metal certificate or a specified derivative of which the underlying interest is one or more permitted precious metals.
(2) A non-redeemable investment fund must not do any of the following:
(a) purchase real property;
(b) purchase a mortgage, other than a guaranteed mortgage;
(c) purchase an interest in a loan syndication, or loan participation, if the purchase would require the non-redeemable investment fund to assume any responsibilities in administering the loan in relation to the borrower.
(3) For the purposes of this section, for each long position in a specified derivative that is held by an investment fund for a purpose other than hedging and for each index participation unit or underlying investment fund held by the investment fund, the investment fund is considered to hold directly the underlying interest of that specified derivative or its proportionate share of the assets held by the issuer of the index participation unit or underlying investment fund.
(4) Despite subsection (3), for the purposes of this section, an investment fund is considered to not hold a security or instrument if that security or instrument is a component of, but represents less than 10% of,
(a) a stock or bond index that is the underlying interest of a specified derivative, or
(b) the securities held by the issuer of an index participation unit or underlying investment fund.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.4
Restrictions Concerning Illiquid Assets
(1) A mutual fund must not purchase an illiquid asset if, immediately after the purchase, more than 10% of its net asset value would be made up of illiquid assets.
(2) A mutual fund must not hold, for a period of 90 days or more, more than 15% of its net asset value in illiquid assets.
(3) If more than 15% of the net asset value of a mutual fund is made up of illiquid assets, the mutual fund must, as quickly as is commercially reasonable, take all necessary steps to reduce the percentage of its net asset value made up of illiquid assets to 15% or less.
(4) A non-redeemable investment fund must not purchase an illiquid asset if, immediately after the purchase, more than 20% of its net asset value would be made up of illiquid assets.
(5) A non-redeemable investment fund must not hold, for a period of 90 days or more, more than 25% of its net asset value in illiquid assets.
(6) If more than 25% of the net asset value of a non-redeemable investment fund is made up of illiquid assets, the non-redeemable investment fund must, as quickly as is commercially reasonable, take all necessary steps to reduce the percentage of its net asset value made up of illiquid assets to 25% or less.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.5
Investments in Other Investment Funds
(1) For the purposes of this section, an investment fund is considered to be holding a security of another investment fund if
(a) it holds securities issued by the other investment fund, or
(b) it is maintaining a position in a specified derivative for which the underlying interest is a security of the other investment fund.
(2) An investment fund must not purchase or hold a security of another investment fund unless,
(a) if the investment fund is a mutual fund, other than an alternative mutual fund, either of the following applies:
(i) the other investment fund is a mutual fund, other than an alternative mutual fund, that is subject to this Instrument;
(ii) the other investment fund is an alternative mutual fund or a non-redeemable investment fund that is subject to this Instrument and, at the time of the purchase of that security, the investment fund holds no more than 10% of its net asset value in securities of alternative mutual funds and non-redeemable investment funds,
(a.1) if the investment fund is an alternative mutual fund or a non-redeemable investment fund, one or both of the following apply:
(i) the other investment fund is subject to this Instrument;
(ii) the other investment fund complies with the provisions of this Instrument applicable to an alternative mutual fund or a non-redeemable investment fund,
(b) at the time of the purchase of that security, the other investment fund holds no more than 10% of its net asset value in securities of other investment funds,
(c) the other investment fund is a reporting issuer in a jurisdiction,
(c.1) [repealed]
(d) no management fees or incentive fees are payable by the investment fund that, to a reasonable person, would duplicate a fee payable by the other investment fund for the same service,
(e) no sales fees or redemption fees are payable by the investment fund in relation to its purchases or redemptions of the securities of the other investment fund if the other investment fund is managed by the manager or an affiliate or associate of the manager of the investment fund, and
(f) no sales fees or redemption fees are payable by the investment fund in relation to its purchases or redemptions of securities of the other investment fund that, to a reasonable person, would duplicate a fee payable by an investor in the investment fund.
(3) Paragraphs (2)(a), (a.1) and (c) do not apply if the security
(a) is an index participation unit issued by an investment fund, or
(b) is issued by another investment fund established with the approval of the government of a foreign jurisdiction and the only means by which the foreign jurisdiction permits investment in the securities of issuers of that foreign jurisdiction is through that type of investment fund.
(4) Paragraph (2)(b) does not apply if the other investment fund
(a) is a clone fund, or
(b) in accordance with this section purchases or holds securities
(i) of a money market fund, or
(ii) that are index participation units issued by an investment fund.
(5) Paragraphs (2)(e) and (f) do not apply to brokerage fees incurred for the purchase or sale of securities issued by an investment fund that are listed for trading on a stock exchange.
(6) An investment fund that holds securities of another investment fund that is managed by the same manager or an affiliate or associate of the manager
(a) must not vote any of those securities, and
(b) may, if the manager so chooses, arrange for all of the securities it holds of the other investment fund to be voted by the beneficial holders of securities of the investment fund.
(7) The investment fund conflict of interest investment restrictions and the investment fund conflict of interest reporting requirements do not apply to an investment fund which purchases or holds securities of another investment fund if the purchase or holding is made in accordance with this section.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.6
Borrowing and Other Investment Practices
(1) An investment fund must not
(a) borrow cash or provide a security interest over any of its portfolio assets unless
(i) the transaction is a temporary measure to accommodate requests for the redemption of securities of the investment fund while the investment fund effects an orderly liquidation of portfolio assets, or to permit the investment fund to settle portfolio transactions and, after giving effect to all transactions undertaken under this subparagraph, the outstanding amount of all borrowings of the investment fund does not exceed 5% of its net asset value at the time of the borrowing,
(ii) the security interest is required to enable the investment fund to effect a specified derivative transaction or short sale of securities under this Instrument, is made in accordance with industry practice for that type of transaction and relates only to obligations arising under the particular specified derivatives transaction or short sale,
(iii) the security interest secures a claim for the fees and expenses of the custodian or a sub-custodian of the investment fund for services rendered in that capacity as permitted by subsection 6.4 (3), or
(iv) in the case of an exchange-traded mutual fund that is not in continuous distribution or a non-redeemable investment fund, the transaction is to finance the acquisition of its portfolio securities and the outstanding amount of all borrowings is repaid on the closing of its initial public offering,
(b) purchase securities on margin, unless permitted by section 2.7 or 2.8,
(c) sell securities short other than in compliance with section 2.6.1, unless permitted by section 2.7 or 2.8,
(d) purchase a security, other than a specified derivative, that by its terms may require the investment fund to make a contribution in addition to the payment of the purchase price,
(e) engage in the business of underwriting, or marketing to the public, securities of any other issuer,
(f) lend cash or portfolio assets other than cash,
(g) guarantee securities or obligations of a person or company, or
(h) purchase securities other than through market facilities through which these securities are normally bought and sold unless the purchase price approximates the prevailing market price or the parties are at arm’s length in connection with the transaction.
(2) Despite paragraphs (1)(a) and (b), an alternative mutual fund or a non-redeemable investment fund may borrow cash or provide a security interest over any of its portfolio assets if each of the following applies:
(a) any borrowing of cash is
(i) from an entity described in section 6.2 or 6.3, and
(ii) if the lender is an affiliate or associate of the investment fund manager of the alternative mutual fund or non-redeemable investment fund, under a borrowing agreement approved by the independent review committee as required under section 5.2 of NI 81-107;
(b) the borrowing agreement is in accordance with normal industry practice and on standard commercial terms for the type of transaction;
(c) the value of cash borrowed, when aggregated with the value of all outstanding borrowing by the alternative mutual fund or non-redeemable investment fund, does not exceed 50% of the alternative mutual fund or non-redeemable investment fund’s net asset value.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.6.1
Short Sales
(1) An investment fund may sell a security short if
(a) the security sold short is sold for cash;
(b) the security sold short is not any of the following:
(i) a security that the investment fund is otherwise not permitted by securities legislation to purchase at the time of the short sale transaction;
(ii) an illiquid asset;
(iii) a security of an investment fund other than an index participation unit; and
(c) at the time the investment fund sells the security short,
(i) the investment fund has borrowed or arranged to borrow from a borrowing agent the security that is to be sold under the short sale,
(ii) if the investment fund is a mutual fund, other than an alternative mutual fund, the aggregate market value of the securities of the issuer of the securities sold short by the mutual fund does not exceed 5% of the net asset value of the mutual fund,
(iii) if the investment fund is a mutual fund, other than an alternative mutual fund, the aggregate market value of the securities sold short by the mutual fund does not exceed 20% of the net asset value of the mutual fund,
(iv) if the investment fund is an alternative mutual fund or a non-redeemable investment fund, the aggregate market value of the securities of the issuer of the securities sold short by the investment fund, other than government securities sold short by an alternative mutual fund or non-redeemable investment fund, does not exceed 10% of the net asset value of the investment fund, and
(v) if the investment fund is an alternative mutual fund or a non-redeemable investment fund, the aggregate market value of the securities sold short by the investment fund does not exceed 50% of the net asset value of the investment fund.
(2) A mutual fund, other than an alternative mutual fund, that sells securities short must hold cash cover in an amount that, together with portfolio assets deposited with borrowing agents as security in connection with short sales of securities by the mutual fund, is at least 150% of the aggregate market value of the securities sold short by the mutual fund on a daily mark-to-market basis.
(3) A mutual fund, other than an alternative mutual fund, must not use the cash from a short sale to enter into a long position in a security, other than a security that qualifies as cash cover.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.6.2
Total Borrowing and Short Sales
(1) Despite sections 2.6 and 2.6.1, an investment fund must not borrow cash or sell securities short if, immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the investment fund would exceed 50% of the investment fund’s net asset value.
(2) Despite sections 2.6 and 2.6.1, if the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the investment fund exceeds 50% of the investment fund’s net asset value, the investment fund must, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short to 50% or less of the investment fund’s net asset value.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.7
Transactions in Specified Derivatives for Hedging and Non-hedging Purposes
(1) An investment fund must not purchase an option or a debt-like security or enter into a swap or a forward contract unless, at the time of the transaction, any of the following apply:
(a) in the case of an option, the option is a clearing corporation option;
(b) the option, debt-like security, swap or forward contract, has a designated rating;
(c) the equivalent debt of the counterparty, or of a person or company that has fully and unconditionally guaranteed the obligations of the counterparty in respect of the option, debt-like security, swap or forward contract, has a designated rating.
(d) the option, debt-like security, swap or forward contract is a cleared specified derivative.
(2) If the credit rating of an option, debt-like security, swap or forward contract, or the credit rating of the equivalent debt of the writer or guarantor of the option, debt-like security, swap or forward contract, falls below the level of designated rating while the option, debt-like security, swap or forward contract is held by an investment fund, the investment fund must take the steps that are reasonably required to close out its position in the option, debt-like security, swap or forward contract in an orderly and timely fashion, unless either of the following applies:
(a) the option is a clearing corporation option;
(b) the option, debt-like security, swap or forward contract is a cleared specified derivative.
(3) Despite any other provisions contained in this Part, an investment fund may enter into a trade to close out all or part of a position in a specified derivative, in which case the cash cover held to cover the underlying market exposure of the part of the position that is closed out may be released.
(4) The mark-to-market value of the exposure of an investment fund under its specified derivatives positions with any one counterparty, calculated in accordance with subsection (5), must not exceed, for a period of 30 days or more, 10% of the net asset value of the investment fund unless either of the following applies:
(a) the specified derivative is a cleared specified derivative;
(b) the equivalent debt of the counterparty, or of a person or company that has fully and unconditionally guaranteed the obligations of the counterparty in respect of the specified derivative, has a designated rating.
(5) The mark-to-market value of specified derivatives positions of an investment fund, with any one counterparty must be, for the purposes of subsection (4),
(a) if the investment fund has an agreement with the counterparty that provides for netting or the right of set-off, the net mark-to-market value of the specified derivatives positions of the investment fund; and
(b) in all other cases, the aggregated mark-to-market value of the specified derivative positions of the investment fund.
(6) Subsections (1), (2) and (3) do not apply to an alternative mutual fund or a non-redeemable investment fund.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.8
Transactions in Specified Derivatives for Purposes Other than Hedging
(0.1) This section does not apply to an alternative mutual fund.
(1) A mutual fund must not
(a) purchase a debt-like security that has an options component or an option, unless, immediately after the purchase, not more than 10 percent of its net asset value would be made up of those instruments held for purposes other than hedging;
(b) write a call option, or have outstanding a written call option, that is not an option on futures unless, as long as the position remains open, the mutual fund holds
(i) an equivalent quantity of the underlying interest of the option,
(ii) a right or obligation, exercisable at any time that the option is exercisable, to acquire an equivalent quantity of the underlying interest of the option, and cash cover that, together with margin on account for the position, is not less than the amount, if any, by which the strike price of the right or obligation to acquire the underlying interest exceeds the strike price of the option, or
(iii) a combination of the positions referred to in subparagraphs (i) and (ii) that is sufficient, without recourse to other assets of the mutual fund, to enable the mutual fund to satisfy its obligations to deliver the underlying interest of the option;
(c) write a put option, or have outstanding a written put option, that is not an option on futures, unless, as long as the position remains open, the mutual fund holds
(i) a right or obligation, exercisable at any time that the option is exercisable, to sell an equivalent quantity of the underlying interest of the option, and cash cover in an amount that, together with margin on account for the position, is not less than the amount, if any, by which the strike price of the option exceeds the strike price of the right or obligation to sell the underlying interest,
(ii) cash cover that, together with margin on account for the option position, is not less than the strike price of the option, or
(iii) a combination of the positions referred to in subparagraphs (i) and (ii) that is sufficient, without recourse to other assets of the mutual fund, to enable the mutual fund to acquire the underlying interest of the option;
(d) open or maintain a long position in a debt-like security that has a component that is a long position in a forward contract, or in a standardized future or forward contract, unless the mutual fund holds cash cover in an amount that, together with margin on account for the specified derivative and the market value of the specified derivative, is not less than, on a daily mark-to-market basis, the underlying market exposure of the specified derivative;
(e) open or maintain a short position in a standardized future or forward contract, unless the mutual fund holds
(i) an equivalent quantity of the underlying interest of the future or contract,
(ii) a right or obligation to acquire an equivalent quantity of the underlying interest of the future or contract and cash cover that together with margin on account for the position is not less than the amount, if any, by which the strike price of the right or obligation to acquire the underlying interest exceeds the forward price of the contract, or
(iii) a combination of the positions referred to in subparagraphs (i) and (ii) that is sufficient, without recourse to other assets of the mutual fund, to enable the mutual fund to deliver the underlying interest of the future or contract; or
(f) enter into, or maintain, a swap position unless
(i) for periods when the mutual fund would be entitled to receive payments under the swap, the mutual fund holds cash cover in an amount that, together with margin on account for the swap and the market value of the swap, is not less than, on a daily mark-to-market basis, the underlying market exposure of the swap; and
(ii) for periods when the mutual fund would be required to make payments under the swap, the mutual fund holds
(A) an equivalent quantity of the underlying interest of the swap,
(B) a right or obligation to acquire an equivalent quantity of the underlying interest of the swap and cash cover that, together with margin on account for the position, is not less than the aggregate amount of the obligations of the mutual fund under the swap, or
(C) a combination of the positions referred to in clauses (A) and (B) that is sufficient, without recourse to other assets of the mutual fund, to enable the mutual fund to satisfy its obligations under the swap.
(2) A mutual fund must treat any synthetic cash position on any date as providing the cash cover equal to the notional principal value of a banker’s acceptance then being accepted by a bank listed in Schedule I of the Bank Act (Canada) that would produce the same annualized return as the synthetic cash position is then producing.
Exemptive Relief Orders
National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.9.1
Aggregate Exposure to Borrowing, Short Selling and Specified Derivatives
(1) An alternative mutual fund or non-redeemable investment fund’s aggregate exposure to cash borrowing, short selling and specified derivatives transactions must not exceed 300% of the fund’s net asset value.
(2) For the purposes of subsection (1), an alternative mutual fund or non-redeemable investment fund’s aggregate exposure is the sum of the following:
(a) the aggregate value of the alternative mutual fund’s or non-redeemable investment fund’s outstanding indebtedness under any borrowing agreements to which subsection 2.6(2) applies;
(b) the aggregate market value of all securities sold short by the alternative mutual fund or non-redeemable investment fund as permitted by section 2.6.1;
(c) the aggregate notional amount of the alternative mutual fund’s or non-redeemable investment fund’s specified derivatives positions, minus the aggregate notional amount of the specified derivative positions that are hedging transactions.
(3) For the purposes of this section, the alternative mutual fund or non-redeemable investment fund must include in its calculation its proportionate share of the assets of any underlying investment fund for which a similar calculation is required.
(4) An alternative mutual fund or non-redeemable investment fund must determine its aggregate exposure in accordance with subsection (2) as of the close of business of each day on which it calculates a net asset value.
(5) If the alternative mutual fund’s or non-redeemable investment fund’s aggregate exposure as determined in accordance with subsection (2) exceeds 300% of its net asset value, the alternative mutual fund or non-redeemable investment fund must, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate exposure to 300% of its net asset value or less.
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