NIN 99/15 - Republication for Comment of Proposed National Instrument 81-101, Form 81-101F1 and Form 81-101F2 and Companion Policy 81-101CP Mutual Fund Prospectus Disclosure [NIN - Rescinded]

Published Date:	1999-04-30
Effective Date:	1999-04-28

The Commission, together with other members of the Canadian Securities Administrators ("CSA"), is republishing for comment the text of proposed National Instrument 81-101 (the "National Instrument"), proposed related Forms 81-101F1 and 81-101F2 (the "Forms") and proposed Companion Policy 81-101CP (the "Companion Policy"). In British Columbia, the Commission is also publishing for comment proposed consequential amendments to the Securities Rules. The National Instrument, Companion Policy, Forms 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. 36 ("NP36"), which they will replace. Specialized mutual funds such as labour sponsored investment funds, commodity pools and mutual funds listed and posted for trading on a stock exchange or quoted on an over-the-counter market are specifically excluded from the regime created by the proposed National Instrument and Forms.

The proposed National Instrument, Forms 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.

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

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, Forms, Companion Policy and consequential amendments contain footnotes that are not part of the proposed National Instrument, Forms, Companion Policy or consequential amendments, which have been included to provide background and explanation.

Revocation of CSA Notice

Effective the date that the proposed National Instrument comes into force, CSA Notice 81-301 "Mutual Fund Prospectus Disclosure System - Concept Proposal - Request for Comment" will be revoked and superseded by the proposed National Instrument.

Background

On July 31, 1998, the Commission, together with the other members of the CSA, published for comment proposed National Instrument 81-101 entitled "Mutual Fund Prospectus Disclosure" (the "1998 Draft Instrument"), Form 81-101F1 and Form 81-101F2 (collectively the "1998 Draft Forms") and proposed Companion Policy 81-101CP (the "1998 Draft Companion Policy").¹

¹ NIN# 98/47.

During the comment period, which ended on October 30, 1998, the CSA received submissions on the 1998 Draft Instrument, the 1998 Draft Forms and the 1998 Draft Companion Policy from a broad range of commenters. As a result of the consideration of those comments, the consideration of three significant reports issued since the initial publication of the proposed National Instrument²

² Since the initial publication of the 1998 Draft Instrument, the following three reports were issued:

• Change Challenge Opportunity The Report of the Task Force on the Future of the Canadian Financial Services Sector September 1998 (the "MacKay Task Force Report")
• The Governance Practices of Institutional Investors report of the Standing Senate Committee on Banking, Trade and Commerce, The Honourable Michael Kirby, Chair, November 1998 (the "Kirby Report")
• Investment Funds in Canada and Consumer Protection Strategies for the Millennium A review by Glorianne Stromberg Prepared for the Office of Consumer Affairs, Industry Canada, October 1998 (released in January 1999) (the "Stromberg Industry Canada Report").

and as the result of further consideration of the 1998 Draft Instrument, the 1998 Draft Forms and the 1998 Draft Companion Policy, the CSA are proposing a number of amendments to the materials published in July 1998. The CSA are therefore publishing for a second time the proposed National Instrument, Forms and Companion Policy.

Details of all comments received and specific changes to the proposed National Instrument, Forms and the 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 the comments received related to the need for change in the following areas:

• to change the nature of the simplified prospectus (the fund summary in the 1998 Draft Instrument) as proposed in the 1998 Draft Instrument permitting more flexibility for mutual fund organizations and enhancing readability for investors

• to permit enhanced educational information to be included in the simplified prospectus (the fund summary in the 1998 Draft Instrument)

• for performance data, to permit comparisons to indices other than broad-based indices, where the special nature of the fund would require such comparisons in order to provide relevant information, and to permit variations on the form of performance disclosure

• to alter the scope of required disclosure for investor suitability and to assess whether disclosure is appropriate

• to change the nature of required disclosure for investment objectives.

National Instrument 81-102

In June, 1998, the CSA published for comment proposed National Instrument 81-102 entitled "Mutual Funds" ("Proposed NI 81-102"), together with a proposed companion policy³.

³ NIN#97/24

These materials are intended to replace National Policy Statement No. 39 ("NP39") and, when in force, would implement a new regulatory regime applicable to publicly offered mutual funds. The Proposed NI 81-102 and the proposed companion policy were published for a second comment period on March 19, 1999⁴.

⁴ NIN#99/9.

Certain disclosure obligations which were originally included in Proposed NI 81-102 have now been published as part of proposed Form 81-101F2⁵.

⁵ Form 81-101F2 is the annual information form.

It is intended that all prospectus disclosure requirements will be contained in the proposed National Instrument and the Forms.

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. The changes are set out in the proposed consequential amendments of the Securities Rules being published with this Notice.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Instrument, Forms, Companion Policy and, in British Columbia, the proposed consequential amendments to the Securities Rules. 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 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
Registrar of Securities, Northwest Territories
Registrar of Securities, Nunavut
Registrar of Securities, 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 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 April 28, 1999.

Douglas M. Hyndman
Chair

Reference: NPS 36
NPS 39
NI 81-102
NIN#97/24
NIN#98/47
NIN#99/9
CSA Notice 81-301

The Securities Rules, B.C. Reg. 194/97, is amended

(a) by adding the following to section 1 (1):

"NI 81-101" means National Instrument 81-101 entitled "Mutual Fund Prospectus Disclosure";

(b) by adding the following sections:

Alternative Certificate of Mutual Fund

98.1 A mutual fund to which NI 81-101 applies is exempt from section 68 of the Act if the prospectus of the mutual fund contains a certificate of the mutual fund, its manager and each of its promoters, prepared and signed in accordance with Form 81-101F2¹.

¹ Sections 98.1, 98.2 and 98.3 are proposed to be added to the Securities Rules. These sections will permit mutual funds and non-redeemable investment funds to provide the certificates which would otherwise be required by section 68 or 69 of the Securities Act in the form and content stipulated by NI 81-101 and as described in Form 81-101F2.

Alternative Certificate of Non-Redeemable Investment Fund or Mutual Fund

98.2 (1) If the non-redeemable investment fund or mutual fund is established as a trust, the certificate required to be signed by the non-redeemable investment fund or mutual fund must be signed by

(a) each individual who is a trustee or by a duly authorized attorney of the individual, or

(b) the duly authorized signing officer or officers of the trustee, if the trustee of the non-redeemable investment fund or mutual fund is a corporation.

(2) Despite subsection (1), a certificate required to be signed by the trustees of a non-redeemable investment fund or mutual fund may be signed by any other person, if that person is duly authorized to sign the certificate by the declaration of trust or trust agreement establishing the non-redeemable investment fund or mutual fund.

(3) Despite subsections (1) and (2), if the trustee of the non-redeemable investment fund or mutual fund is also its manager, the certificate must state that the certificate is being signed by the person both in the capacity as trustee and as manager of the non-redeemable investment fund or mutual fund and must be signed in accordance with section 98.3.

(4) A non-redeemable investment fund, or a mutual fund to which NI 81-101 does not apply, is exempt from paragraphs 68 (2) (a) and (b), and subsection 68 (3) of the Act if the certificate required by subsection 68 (1) of the Act is signed in accordance with this section.

Certificate of Manager

98.3 (1) A non-redeemable investment fund, or a mutual fund to which NI 81-101 does not apply, must contain a certificate from the manager of the non-redeemable investment fund or mutual fund.

(2) The certificate required under subsection (1) must be in the same form as the certificate required by section 68 (1) of the Act.

(3) If the manager is a corporation, the certificate required by subsection (1) must be signed by the chief executive officer and the chief financial officer of the manager, and on behalf of the board of directors of the manager by any two directors of the manager other than the chief executive officer or chief financial officer, duly authorized to sign.

(4) Despite subsection (3), if the manager has only three directors, two of whom are the chief executive officer and chief financial officer, the certificate required to be signed by subsection (3) must be signed by the remaining director of the manager.

Certificate of Promoter

98.4 Section 68 (2) does not apply to a promoter of a mutual fund if NI 81-101 applies to the mutual fund and the promoter signs the certificate in accordance with NI 81-101.

Certificate of Principal Distributor

98.5 If a prospectus for a mutual fund to which NI 81-101 applies contains the certificate of the principal distributor prepared and signed in accordance with Form 81-101F2, section 69 of the Act does not apply.²

² This section is intended only to provide an alternative certificate and does not relieve principal distributors from an action for damages pursuant to section 131 of the Securities Act.

(c) by repealing sections 100 to 105³;

³ The National Instrument sets out the requirements applicable to the filing of a simplified prospectus by a mutual fund under the simplified prospectus system of disclosure. These requirements will replace sections 100 to 105 of the Securities Rules, which currently set out the filing requirements for a mutual fund simplified prospectus. It is proposed that sections 100 to 105 of the Securities Rules will be repealed following the implementation of the National Instrument.

(d) by adding the words "in the required form, and", before the words " each for," in section 113(1)⁴; and

⁴ An amendment is proposed to section 113(1) of the Securities Rules to clarify that financial statements of a mutual fund must be in the required form. Form 52 continues as the required form.

(e) by repealing section 113(2)(b) and substituting the following:

(b) forms part of the prospectus and is sent to a person that requests a copy of the statement of portfolio transactions.