Split Shares - MER Disclosure
This article was originally published in the Investment Funds Practitioner in January 2010.
We remind filers of the requirement contained under section 15.1(4) of NI 81-106 to calculate the MER for each class of securities. In the case of investment funds having capital shares and preferred shares outstanding, section 15.1(4) requires that MER be calculated for each of the capital shares and the preferred shares. We recognize that the preferred shares do not normally bear any costs until the net asset value of the capital shares has diminished completely. Preferred shares may also be considered as a liability to the capital shares and any distribution made to the preferred shares as interest costs to the capital shares. Consequently, we have been raising comments on both prospectus and continuous disclosure reviews to confirm whether a filer will be calculating MERs for each of the capital and preferred shares and whether the MER for the capital shares will include distributions paid on the preferred shares.