NIN 99/09 - Republication for Comment of Proposed National Instrument 81-102 and Companion Policy 81-102CP Mutual Funds [NIN - Rescinded]

The Commission, together with other members of the Canadian Securities Administrators ("CSA") is republishing for comment the text of proposed National Instrument 81-102 (the "National Instrument") and proposed Companion Policy 81-102CP (the "Companion Policy"). In British Columbia, the Commission is also publishing for initial comment proposed consequential amendments to the Securities Rules. The National Instrument, Companion Policy and proposed consequential amendments to the Securities Rules deal with the regulatory regime applicable to publicly offered mutual funds and are a reformulation of National Policy No. 39 ("NP39"), which they will replace. Specialized mutual funds such as labour sponsored investment funds, mortgage funds and commodity pools will generally be required to comply with the proposed National Instrument and applicable securities regulation that is in addition to, or in partial substitution for, the provisions of the proposed National Instrument.

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

Terms used in the proposed Companion Policy that are defined or interpreted in the proposed National Instrument or a definition instrument in force in the jurisdiction and not otherwise defined in the proposed Companion Policy should be read in accordance with the proposed National Instrument or that definition instrument, unless the context otherwise requires. The National Instrument and Companion Policy contain footnotes that are not part of the proposed National Instrument or Companion Policy, which have been included to provide background and explanation.

Revocation of CSA Notice

Effective the date that the proposed National Instrument comes into force, the CSA Notice entitled "National Policy Statement No. 39 - Mutual Funds: Section 16 - Sales Communications" (CSA #93/5) will be revoked. CSA#93/5 will be superseded by the proposed National Instrument.

Background

On June 27, 1997, the Commission, together with the other members of the CSA, published for comment proposed National Instrument 81-102 entitled "Mutual Funds" (the "1997 Draft") and proposed Companion Policy 81-102CP (the "1997 Draft Companion Policy").¹

¹ NIN#97/24.

During the comment period, which ended on October 31, 1997, the CSA received submissions on the 1997 Draft and the 1997 Draft Companion Policy from a broad range of commenters. As a result of the consideration of those comments and as the result of further consideration of the 1997 Draft and the 1997 Draft Companion Policy, the CSA are proposing a number of amendments to the materials published in June 1997, and are therefore publishing for a second time the proposed National Instrument and Companion Policy.

Details of all comments received and specific changes to the proposed National Instrument and the proposed Companion Policy may be found in the OSC Notice relating to the National Instrument at the Ontario Securities Commission website at www.osc.gov.on.ca. Many of these comments related to the need for change in the following seven areas:

• Use of swap instruments by mutual funds;

• Securities lending by mutual funds and the use of repurchase agreements by mutual funds;

• Standardized regime for the structure of so-called "funds of funds";

• Timing of transfers among financial institutions and among mutual funds;

• Principal trading in securities between mutual funds and entities related to the manager of the mutual fund;

• Acquisition of securities by mutual funds from underwriters related to the mutual fund manager; and

• Inter-fund trading of securities.

The CSA propose to permit mutual funds to directly use swaps and the proposed National Instrument contains the proposed rules in this regard.

However, the CSA propose that the remaining issues be addressed as part of a parallel process that will enable sufficient public comment and industry consultation regarding any revised rules. The CSA propose to consider each of the comments not dealt with in the proposed National Instrument as expeditiously as possible and publish proposed rules later during 1999 or 2000 as amending instruments to the proposed National Instrument. The CSA consider that their anticipated process of dealing with these significant comments will permit appropriate regulatory and public consideration of the issues, as well as permit the timely replacement of NP 39, through the finalization of the proposed National Instrument in advance of finalizing the appropriate regulatory response to these significant comments.

National Instrument 81-101

In July, 1998, the CSA published for comment proposed National Instrument 81-101 Mutual Fund Prospectus Disclosure ("Proposed NI81-101"), together with a proposed companion policy and related forms².

² NIN#98/47.

These materials are intended to replace National Policy Statement No. 36 ("NP36") and, when in force, would implement a new regulatory regime governing the disclosure provided by mutual funds in satisfaction of the prospectus requirements of securities legislation. The CSA intend that Proposed NI81-101 will contain all of the applicable prospectus disclosure requirements applicable to mutual funds. The proposed National Instrument reflects the regime proposed by Proposed NI81-101, but has not at this time adopted terms used in Proposed NI81-101 to retain flexibility.

Consequential Amendments

In order to avoid inconsistencies between the Securities Rules and the proposed National Instrument, consequential amendments to the Securities Rules will be required. In particular, the proposed amendments clarify that certain requirements set out in sections 57 and 58 of the Securities Rules do not apply if a registrant is a member of certain self regulatory organizations³

³ Pursuant to BOR#95/6, members of the Vancouver Stock Exchange and The Investment Dealers Association of Canada (collectively the "SRO") are exempt from the requirements of sections 57(2) and 58 of the SecuritiesRules, provided the members comply with the SRO bylaws, rules, or other regulatory instruments or policies. It is anticipated that BOR#95/6 will be revoked and a new BOR issued to continue the other relief currently provided by BOR#95/6.

or if a registrant complies with the trust account provisions set out in the proposed National Instrument as they relate to mutual funds.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Instrument and Companion Policy. Submissions received by May 18, 1999 will be considered.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission, in duplicate, as indicated 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
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon 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.gouv.qc.ca

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation 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 Commission and of the Commission des valeurs mobilières du Québec, and also to any of the individuals noted below at their respective E-mail addresses.

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 Redwick
Director, Corporate Finance
British Columbia Securities Commission
(604) 899-6699
or (800) 373-6393 (in B.C.)
E-mail: wredwick@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

Paul Dempsey
Legal Counsel, Investment Funds
Capital Markets
Ontario Securities Commission
(416) 593-8091
E-mail: pdempsey@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.gouv.qc.ca

DATED at Vancouver, British Columbia, on March 18, 1999.

Joyce C. Maykut, Q.C.
Vice Chair

1. Section 58 (c) is repealed and replaced by the following

(c) ensure that any interest earned on the subscriptions or prepayments while in trust accrues or is paid to the credit of the clients.

2.The following sections are added:

Membership in Self-Regulatory Organization and Handling of Clients’ Money

58.1 Sections 57(2) and 58 do not apply to a registrant that is a member of, and that complies with the rules, bylaws or other regulatory instruments or policies established by, The Investment Dealers Association of Canada, The Alberta Stock Exchange, The Montreal Exchange, The Toronto Stock Exchange or the Vancouver Stock Exchange, relating to the handling of client money.

Mutual Fund Money

58.2 Sections 57(2) and 58 do not apply to any subscriptions or prepayments held by a registrant for clients pending investment in the securities of a mutual fund, or to clients’ free credit balances arising from a redemption of securities of a mutual fund, if NI 81-102 applies to those subscriptions, prepayments or credit balances.