NIN 99/39 - Advance Notice of National Instrument 81-102 and Related Documents - Mutual Funds [NIN - Rescinded]

Implementation of National Instrument

National Instrument 81-102 Mutual Funds ("NI 81-102") and Companion Policy 81-102CP (the "Companion Policy") are initiatives of the Canadian Securities Administrators ("CSA") and, together with consequential amendments to the Securities Rules, regulate all publicly offered investment funds that fall within the definition of "mutual fund" contained in securities legislation.

The Commission has not yet made NI 81-102 as a rule, nor has it made the related consequential amendments to the Securities Rules. This Advance Notice is being published to provide notice that the Commission expects to make NI 81-102 and the related consequential amendments as rules before February 1, 2000, when NI 81-102 is expected to come into force as a rule in British Columbia, Alberta, Manitoba, Ontario, and Nova Scotia, as a Commission regulation in Saskatchewan, and as a policy in all other jurisdictions represented by the CSA. The Companion Policy has been, or is expected to be, implemented as a policy in all of the jurisdictions represented by the CSA.

When made as rules, NI 81-102 and the consequential amendments to the Securities Rules, together with related documents, will be published in the Weekly Summary. The Commission anticipates publishing NI 81-102 in January 2000, once it has received all necessary approvals. The Ontario Securities Commission ("OSC") has adopted NI 81-102 as a rule and is publishing NI 81-102 and related documents in the November 12, 1999 issue of the OSC Bulletin.

Rescission of National Policy Statements and CSA Notice

Effective the date that the proposed National Instrument comes into force, National Policy 34 Unincorporated Issuers: Requirements to Maintain a Register of Security Holders, National Policy Statement No. 39 Mutual Funds ("NP 39") and CSA Notice #93/5 Mutual Funds: Section 16 Sales Communications will be rescinded and replaced by NI 81-102. Also, effective that date, NIN#90/4 National Policy No. 39 - Mutual Funds Distributor’s Report and Auditor’s Letter, NIN#92/30 National Policy Statement No. 39 - Mutual Funds: Draft Section 2.09 - Certain Related Parties Acting as Principals in Purchases or Sales of Portfolio Debt Securities and Proposed Revocation of Section 4.03 - Dealer Manager Acting as Principal and NIN#94/5 National Policy Statement No. 39 Definition of Debt-Like Securities will lapse.

Consequential Amendments

In order to avoid inconsistencies between the Securities Rules and NI 81-102, 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 Advance Notice. No comments were received about the consequential amendments during either of the public comment periods.

Background

The Commission, together with other members of the CSA, first published drafts of NI 81-102, the Companion Policy 81-102CP and consequential amendments to the Securities Rules for public comment on June 27, 1997.

The CSA subsequently published amended drafts of NI 81-102, the Companion Policy and proposed consequential amendments to the Securities Rules for a second public comment on March 19 1999. ¹

¹ NIN#99/9

Comments on the second publication drafts were received from 13 commenters. The comments provided in these submissions have been considered by the CSA and the final versions of NI 81-102 and the Companion Policy being published with this Advance Notice reflect the decisions of the CSA.

A full description of the comments received, and the response of the CSA to the comments, may be found in the OSC Notice relating to NI 81-102 on the OSC website at www.osc.gov.on.ca.

Substance and Purpose of the National Instrument

NI 81-102 and the Companion Policy are designed to replace NP 39 and will regulate all publicly offered investment funds that fall within the definition of "mutual fund" contained in securities legislation. Accordingly, all publicly offered investment funds that give investors the right to redeem securities on demand at a price based on the net asset value of those securities will be required to comply with NI 81-102. Specialized mutual funds such as labour-sponsored investment funds, mortgage funds and commodity pools will generally be required to comply with NI 81-102 and also applicable securities regulation that is in addition to, or in partial substitution for, the provisions of NI 81-102.

The Companion Policy states the views of the CSA on various matters relating to NI 81-102.

DATED at Vancouver, British Columbia, on November 9, 1999.

Douglas M. Hyndman
Chair

Reference: National Policy No. 34
National Policy Statement No. 39
NIN#90/4
NIN#92/30
NIN#94/5
NIN#99/9
CSA Notice #93/5

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.