Commission Approval of Rule

NOTICE OF RULE UNDER

THE SECURITIES ACT

RULE 81-501

MUTUAL FUND REINVESTMENT PLANS

Notice of Rule

The Commission has, under section 143 of the Securities Act (the "Act"), made Rule 81-501 Mutual Fund Reinvestment Plans (the "Rule").

The Rule and the material required by the Act to be delivered to the Minister of Finance were delivered on July 30, 1997. If the Minister does not approve theRule, reject the Rule or return it to the Commission for further consideration, the Rule will come into force on October 14, 1997. If the Minister approves theRule, the Rule will come into force 15 days after it is approved.

Substance and Purpose of Rule

The purpose of the Rule is to provide relief from the registration and prospectus requirements of the Act for trades by mutual funds of securities underreinvestment plans, as defined in the Rule, upon the conditions contained in the Rule.

The Rule is a reformulation of two Blanket Rulings of the Commission: In the Matter of the Automatic Investment of Dividends or Distributions in Shares orUnits of Mutual Funds (1983), 6 OSCB 1078 (the "Automatic Plan Ruling"); and In the Matter of the Mandatory Investment of Dividends or Distributions in Shares or Units of Mutual Funds (1985), 8 OSCB 4308 (the "Mandatory Plan Ruling"). Each of the Blanket Rulings has been replaced by a rule containing thesame provisions as the Blanket Ruling to which it relates, and each of the replacement rules will expire on the earlier of July 1, 1998 and the date that the Rulecomes into force. 1 The Automatic Plan Ruling and the Mandatory Plan Ruling are collectively referred to in this Notice as the "Blanket Rulings".

Summary of Rule

Part 1 of the Rule defines a reinvestment plan (a "Reinvestment Plan") as a plan that permits or requires that a dividend or distribution of income, capital or capital gain made by a mutual fund and attributable to securities issued by the mutual fund be reinvested in securities of the same class or series as the securitiesto which the dividend or distribution of income, capital or capital gain is attributable and that is made available or applicable to all holders of the securities to which the dividend or distribution is attributable. The definition includes both Reinvestment Plans in which the reinvestment is mandatory ("Mandatory Reinvestment Plans") and those in which the reinvestment is automatic, but optional ("Automatic Reinvestment Plans"). Securityholders of mutual funds that have Automatic Reinvestment Plans have the right to elect to participate in the Automatic Reinvestment Plan, and the right not to so participate.

Part 2 of the Rule provides relief from the registration and prospectus requirements of the Act for a trade by a mutual fund of a security under a Reinvestment Plan if two conditions are satisfied. Firstly, no sales charge can be payable on the trade and secondly, the mutual fund must have caused to be sent to the personor company to whom the security is traded, not more than 12 months before the trade, a statement describing certain matters prescribed by the Rule. These conditions are consistent with the conditions provided for in the Blanket Rulings, except that the annual disclosure statement must now disclose any deferred orcontingent sales charges or redemption fees payable on redemption of the securities traded under Reinvestment Plans.

Subsection 2.1(2) provides that the condition to provide the statement referred to in subsection 2.1(1) is satisfied if the statement is contained in the annualreport of the mutual fund or is contained in the current prospectus of the mutual fund if the current prospectus was sent to the person or company to whom the relevant security was traded.

Summary of Written Comments Received by the Commission

A proposed version of the Rule was published by the Commission for comment in May 19962 (the "May 1996 Version"). The Commission received twocomment letters in respect of the May 1996 Version; those letters were from The Investment Funds Institute of Canada ("IFIC"), who commented on behalf of its members, and Scotia Securities Inc.

As a result of staff's consideration of those comments, its recommendations to the Commission and the deliberations of the Commission, the Commissionpublished an amended version of the Rule in February 1997 (the "February 1997 Version") for comment in accordance with the requirements of section 143.2(7)of the Act. The changes made to the February 1997 Version from the May 1996 Version, together with a summary of the comments made on the May 1996Version, were described in a Commission Notice published on February 14, 19973 (the "February Notice").

Guardian Group of Funds Ltd. commented in respect of the February 1997 Version, making two submissions.

The first submission is in respect of the second condition to the relief provided for in the Rule; the requirement to deliver, on an annual basis, the relevantdescriptive statement. The commenter notes that, in its view, the condition may result in additional costs for mutual fund companies, in that it imposes arequirement to provide a "lengthy disclosure statement" not required by the Blanket Rulings. The commenter suggests the Rule be amended to require thisdisclosure statement be sent to securityholders only in years where changes to the matters required to be disclosed have occurred from previous years.

The Commission has not changed the Rule to account for this comment. The Commission does not agree that paragraph 2.1(1)(b) imposes significantly different disclosure requirements from that required by the Blanket Rulings. As outlined in the February Notice the requirement to annually disclose any fees payable upon redemption of securities issued in respect of reinvested distributions was included in the Rule in conjunction with the Commission's decision to delete acondition that no redemption fees be payable as proposed in the May 1996 Version. The Rule reflects changes in the mutual fund industry since the date of theBlanket Rulings and as such, the Commission considers the condition to be appropriate. The Commission also does not agree that the requisite disclosurestatement need necessarily be "lengthy" or unduly complex. The Commission is of the view that the condition in the Automatic Plan Ruling that security holders receive an annual information statement containing the required information continues to be important. Fund managers have flexibility in how they provide the required information and should conduct their operations accordingly.

The commenter also reiterates a comment made by IFIC in respect of the May 1996 Version, namely that the Rule be expanded to provide the prospectus and registration relief for reinvestments of distributions received from one mutual fund in securities of another related mutual fund, provided that the investor acquired securities of the first fund under a prospectus that contained disclosure about the second mutual fund and the manager of such funds provides investorswith a combined annual report containing the financial statements of both funds.

As noted in the February Notice, the Commission is not prepared to extend the relief provided by the Rule, on a blanket basis, at this time and has not so changed the Rule. The Commission has, to date, granted relief from the prospectus and registration requirements of the Act to a limited number of fund managers to permit these investment options to be carried out, on certain conditions that are in addition to the conditions contained in the Rule. The Commissionand staff will deal with any applications made by fund managers in this regard, on a case by case basis, and will monitor whether the Rule should be extended inthe future to cover these investment options.

Text of Rule

The text of the Rule follows. The Rule is unchanged from the February 1997 Version.

DATED: August 1, 1997.

ONTARIO SECURITIES COMMISSION RULE 81-501

MUTUAL FUND REINVESTMENT PLANS

PART 1 DEFINITION

1.1 Definition - In this Rule, "reinvestment plan" means a plan that

(a) permits or requires that a dividend or distribution of income, capital or capital gain made by a mutual fund and attributable to securities issued by the mutual fund be reinvested in securities of the same class or series as the securities to which the dividend or distribution of income, capital or capital gain is attributable, and

(b) is made available or applicable to all holders of the securities to which the dividend or distribution is attributable.

PART 2 REGISTRATION AND PROSPECTUS EXEMPTION

Registration and Prospectus Exemption

(1) Sections 25 and 53 of the Act do not apply to a trade by a mutual fund of a security under a reinvestment plan if

(a) no sales charge is payable on the trade; and

(b) the mutual fund has caused to be sent to the person or company to whom the security is traded, not more than 12 months before the trade, a statement describing

(i) details of any deferred or contingent sales charge or redemption fee that is payable at the time of the redemption of the security,

(ii) any right that the person or company has to make an election to receive cash instead of securities on the payment of a dividend or making of a distribution bythe mutual fund,

(iii) instructions on how the right referred to in subparagraph (ii) can be exercised, and

(iv) the name and address of the person or company from whom a copy of the current prospectus of the mutual fund may be obtained or, if there is no current prospectus, notice of this fact and an explanation of the reason.

(2) The condition referred to in paragraph (1)(b) is satisfied if the statement referred to in that paragraph is contained in the annual report of the mutual fund or is contained in the current prospectus of the mutual fund if that prospectus was sent to the person or company referred to in paragraph (1)(b).