Notice of Proposed National Instrument: NI - 81-101 81-101CP - Mutual Fund Prospectus Disclosure and Rescission of National Policy No. 36
Notice of Proposed National Instrument: NI - 81-101 81-101CP - Mutual Fund Prospectus Disclosure and Rescission of National Policy No. 36
Comments may be sent via E-mail to:
- Daniel P. Iggers
Secretary to the Commission
- Winfield Liu
Senior Legal Counsel
- Rebecca Cowdery
Investment Funds Team Manager
COMPANION POLICY 81-101CP
AND RESCISSION OF
NATIONAL POLICY STATEMENT NO. 36
MUTUAL FUND PROSPECTUS DISCLOSURE
Substance and Purpose of Proposed National Instrument, Forms and Companion Policy
The proposed National Instrument, Forms 81-101F1 and 81-101F2 (the "Forms") and the proposed Companion Policy collectivelyare intended to replace National Policy Statement No. 36 ("NP36"). Through these proposed instruments, the Canadian SecuritiesAdministrators (the "CSA") seek to implement a new regulatory regime governing the disclosure provided by mutual funds insatisfaction of the prospectus requirements of securities legislation.
The proposed National Instrument, Forms and Companion Policy are initiatives of the CSA. The proposed National Instrument isexpected to be adopted as a rule in each of British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, as a CommissionRegulation in Saskatchewan and as a Policy in all other jurisdictions represented by the CSA, other than Quebec. The proposedForms will be adopted as rules in Ontario. The proposed Companion Policy is expected to be implemented as a policy in all of thejurisdictions of the CSA.
The Commission des valeurs mobilières du Québec (the "CVMQ") notes that its securities legislation provides for a specific simplifiedprospectus disclosure regime for mutual fund disclosure (similar to NP36). The CVMQ will be conducting a review of its securitieslegislation to determine how best it can integrate the disclosure regime proposed by the National Instrument with its mandated mutualfund prospectus disclosure regime.
This Notice summarizes the proposed National Instrument, Forms and Companion Policy. Since the proposed documents aredesigned to replace, and not simply reformulate NP36, the CSA have not described, other than in a general fashion, the changesmade to NP36. However, the Concordance Table that is being published with this Notice outlines the treatment of each provisionof NP36 in the proposed documents. Further background and explanation of certain changes are contained in the footnotes containedin each document.
The proposed National Instrument, Forms and Companion Policy are the culmination of a regulatory review process initiated in late1995 by the CSA Mutual Funds Committee (the "Committee"). The Committee's review of alternatives to the current simplifiedprospectus disclosure regime was prompted, in part, by the release earlier in 1995 of the report of Ontario Commissioner GlorianneStromberg(1)
(the "Stromberg Report"). The Committee shared the concerns expressed by Commissioner Stromberg about theshortcomings of NP36 and the disclosure being provided by many mutual funds in simplified prospectuses.
As it developed its proposals, the Committee worked with a sub-committee of The Investment Funds Institute of Canada ("IFIC") andsought input from the members of the disclosure working committee established by the Investment Funds Steering Group, theindustry/regulatory group asked to provide its views on the recommendations contained in the Stromberg Report. Both groups ofindustry participants encouraged the Committee in its work and acted as valuable resources to the Committee.(2)
In January 1997, the CSA released for comment a Concept Proposal(3)
that described the Committee's recommended replacementmutual fund prospectus disclosure system, then named the "Summary Information Prospectus Disclosure System".
The central concept of the proposed Summary System was to continue the two prospectus document system established by NP36,through the use of a point of sale document (then named the Summary Information Statement) and a complete base disclosuredocument (then named the Base Disclosure Document). The Base Disclosure Document would not be required to be delivered toall investors, but, like the annual information form mandated by NP36, would be available upon request. However, the SummarySystem updated and improved on, and standardized the format of, the items of disclosure to be provided in these documents. TheSummary System also proposed to eliminate the requirement contained in NP36 to deliver financial statements to investors, alongwith the simplified prospectus. Instead, the Summary Information Statement would contain certain financial information.
The CSA received submissions from seven commenters in response to its request for comments on the Concept Proposal. IFICprovided the primary submission and included with its submission two versions of a prototype fund summary (IFIC recommendedthat the name "summary information statement" be changed to "fund summary") - one for a single mutual fund and the other coveringa number of mutual funds.
The CSA considered these comments in developing the proposed National Instrument, Forms and Companion Policy. Appendix Ato this Notice describes the comments received and the response of the CSA to such comments.
CSA Approach to Mutual Fund Prospectus Disclosure
In proposing a new regulatory regime for mutual fund prospectus disclosure, the CSA agree with Commissioner Stromberg'srecommendation that the CSA not "abandon disclosure as a regulatory strategy but rather ... concentrate on making disclosurerelevant, meaningful, easily identifiable and readily accessible"(4)
. The CSA also agree with the four essential elements of a strongeffective disclosure system identified by Commissioner Stromberg:
- an industry generic, basic investor education document;
- a "base disclosure document" that discloses all relevant information about a mutual fund;
- a short concise point of sale disclosure document; and
- annual and semi-annual financial statements, inclusive of management's discussion and analysis, to be sent toinvestors once they become investors in a mutual fund.
The CSA seek to achieve two of these elements through the mutual fund prospectus disclosure system outlined in the proposedNational Instrument, which will mandate preparation of:
a Fund Summary to be delivered to all investors within the times prescribed by applicable securities legislation -the short concise point of sale disclosure document; and
a Fund Prospectus to be delivered to those investors wishing to have more information about an investment in themutual fund who ask to receive the document - the "base disclosure document that discloses all relevant informationabout a mutual fund".
The CSA wish to re-affirm as a regulatory strategy for mutual fund prospectus disclosure, the original goals of NP36 to ensure that:
each mutual fund investor receives a concise outline of important information about his or her mutual fundinvestment, via a short, readable, informative document, and
those investors who would like additional information about their mutual fund investments have easy access to acomplete document that contains additional information about the mutual fund, as well as to the financialstatements of the mutual fund.
The CSA also wish to build on those original goals of NP36, through the proposed National Instrument, Forms and Companion Policy,by:
revising and updating the items of disclosure required in both a Fund Summary received by all investors and in aFund Prospectus received by those investors who request it, to better address the information needs of investors;
ensuring that a Fund Summary is written using plain language and is presented in an easy to read, standardizedfashion that facilitates comparison of information about different mutual funds;
ensuring that a Fund Summary remains a manageable, readable document by limiting the extent to which non-essential information is provided in it;
encouraging industry participants to provide investors with educational information that explains an investment ina mutual fund, either through the use of an industry generic investor education document or through the additionof relevant educational information in, or attached to, a Fund Summary;
providing investors with more relevant financial information about mutual fund investments, by substituting user-friendly, understandable financial highlights in a Fund Summary in place of mandated point of sale delivery offinancial statements; and
ensuring that investors are made aware that they can obtain further information about a mutual fund if they wish,and facilitating the receipt by the investor of that information.
Although the proposed National Instrument does not mandate preparation and delivery of an industry generic basic investor educationdocument, the CSA anticipate that industry participants will further investor education by:
the preparation by IFIC of an industry generic basic investor education document that has the CSA's input, andwhich will be made available to fund companies; and
fund companies providing this or other educational information either as part of a Fund Summary or attached toa Fund Summary, as permitted by the proposed National Instrument.
The CSA have agreed to work with IFIC to ensure that the industry generic investor education document is finalized, optimally by thetime that the proposed National Instrument comes into force. The CSA will consider how best to ensure that investors know aboutthis investor education document and be encouraged to obtain it.
The CSA expect that the final essential element of a strong, effective disclosure system, the financial and other information to beprovided to investors on a continuous basis after investment, will be implemented following the proposed review of the currentfinancial disclosure requirements set out in provincial securities legislation and regulations. This review will take into account therecommendations contained in the Stromberg Report and the Steering Group report for improvements to the existing disclosurerequirements, including the recommendations that mutual funds provide management discussion and analysis disclosure to investors.
The CSA is also reviewing the recommendations contained in the research report of a study group of The Canadian Institute ofChartered Accountants released in August 1997(5)
(the "Research Report"). The Research Report also recommends management'sdiscussion and analysis disclosure be mandated for mutual funds and makes a number of other recommendations for reform of thefinancial reporting requirements for mutual funds.
Overview of the Proposed Mutual Fund Prospectus Disclosure Regime
Although the CSA have dropped the name "Summary Information Prospectus Disclosure System", the essential elements of theproposed prospectus disclosure system and the documents that are to be completed, filed and delivered under the proposed NationalInstrument, have not changed from that described in the Concept Proposal.
Part 2 of the proposed Companion Policy outlines the underlying philosophy of the proposed prospectus disclosure system. Inparticular, section 2.1 explains: "[t]he purpose of the Instrument is to ensure that mutual funds provide investors with disclosuredocuments that clearly and concisely state information that investors should consider in connection with an investment decision aboutthe mutual fund".
The CSA wish to ensure that all investors are given certain essential information about a mutual fund via a Fund Summary, whichwill be written in a style that will encourage its review by investors. Investors will then be given a choice about how much moreinformation they wish to consider before making a decision to invest in a mutual fund. Those investors who wish more informationabout their mutual fund investment can request a Fund Prospectus that provides "full, true and plain disclosure" of all "material facts"about the mutual fund and can also request the financial statements of the mutual fund.
IFIC has advised the CSA that fund companies expect that the majority of investors will make their investment decisions based onthe information contained in a Fund Summary. While recognizing this, the CSA wish to ensure that a complete disclosure documentis available for those investors seeking detailed information.
The Fund Summary
The Fund Summary mandated by the proposed National Instrument is critical to the success of the proposed disclosure system.Section 2.2 of the proposed Companion Policy describes the central purpose of the Fund Summary a "short, concise document thatis designed to provide typical investors with the necessary information to permit them to make an informed investment decision".
The CSA wish to achieve three essential goals with the Fund Summary:
- Clarity in communication of essential information about a mutual fund. The proposed National Instrument mandatesthe use of plain language and also the use of certain specified disclosure statements. The proposed NationalInstrument also imposes certain presentation requirements.
- Ease of comparability of different mutual funds. All Fund Summaries must follow the same order of disclosure, anduse the same headings, of the specified disclosure items.
Disclosure only of essential information. No additional information can be provided in a Fund Summary, other than"educational information" as defined in the proposed National Instrument. The information to be provided inresponse to the mandated disclosure items will be the most essential information for a typical investor to assisthim or her to make an informed investment decision, and should not be obscured by other information.
The CSA outline in greater detail later in this Notice the mandated disclosure items required by the proposed Fund Summary Form.These disclosure items provide for five major innovations for mutual fund prospectus disclosure:
standardized performance information;
selected financial highlights;
better disclosure of investment objectives and strategy of a mutual fund and the risks associated with an investmentin the mutual fund;
examples of the impact on an investor's return of the fees associated with the different purchase options offeredby a mutual fund company; and
if a Fund Summary contains information about more than one mutual fund, it must follow a catalogue approachunder which all the important information about a specific mutual fund must be presented together on consecutivepages.
In identifying the items of disclosure for a Fund Summary and a Fund Prospectus, the CSA worked with the disclosure sub-committeeof IFIC and reviewed the comments received on the Concept Proposal. The CSA also reviewed the new rules of the Securities andExchange Commission of the United States (the "SEC") for mutual fund disclosure in fund profile prospectuses and prospectuses(the "SEC disclosure rules").(6)
The CSA also reviewed the increasing numbers of very good simplified prospectuses that have been filed by fund companies in recentyears to ensure that the proposed Fund Summary does not stifle the innovation and creativity displayed by these fund companies.
The items of disclosure outlined in the Fund Summary Form and the Fund Prospectus Form represent a significant re-developmentof the disclosure items presently contained in NP36. Where the CSA were of the view that the disclosure items mandated in NP36remained appropriate, the CSA retained them, primarily as disclosure items in the Fund Prospectus Form. However, the CSA areof the view that many of the items mandated for annual information forms in NP36 do not result in informative disclosure forinvestors. In some cases the disclosure items do not reflect the realities of the form and structure of today's mutual funds or industry.Accordingly, many items have not been carried forward into the new Forms. The Concordance Table published with this Noticeindicates the disposition of the disclosure items required by NP36.
Name of Prospectus Documents
Names for mutual fund prospectus disclosure documents should be meaningful and readily understood by investors. The CSA chosethe name "fund summary" for the disclosure document required to be delivered to investors under the proposed National Instrumentand the name "fund prospectus" for the complete disclosure document required to be prepared by mutual funds and delivered to thoseinvestors who request it. The CSA are of the view that the complete disclosure document should continue to bear the descriptivename of "fund prospectus", although they will consider comments in this regard. The CSA are, however, considering alternativesfor the name of the "fund summary" and, in particular, are considering whether or not this name should also include the word"prospectus" having regard to the importance of this document as a disclosure document that gives investors legal rights undersecurities legislation and at law. The CSA note, however, that the name of this document must also give investors notice that thisdocument is not a full disclosure document that contains "full, true and plain disclosure" of all "material facts" about the mutual fund.
Consolidation of Information
The CSA in the Concept Proposal noted the issue of whether disclosure about more than one mutual fund could be included in asingle Fund Summary. The CSA proposed to limit consolidation of information relating to more than one mutual fund in one FundSummary because of concerns that unlimited consolidation would unduly lengthen the documents, making them less readable anduser-friendly. The Concept Proposal indicated that only mutual funds with similar investment objectives and risk profiles or otherlogical groupings of mutual funds could consolidate their disclosure into one Fund Summary.
The CSA have dropped the concept of limiting consolidation. The comments received on the Concept Proposal were in support ofunlimited consolidation. Commenters pointed out the practical problems with a disclosure regime that would require one FundSummary for each mutual fund or a limited group of mutual funds. The proposed National Instrument does not restrict the numberof mutual funds that can provide disclosure in one Fund Summary, provided the mandated "catalogue" approach established by theFund Summary Form is followed. The fund-by-fund "catalogue" approach requires that all information specific to a particular fundmust be described in a separate section of the Fund Summary, headed with the name of the mutual fund.
Similarly, the CSA are not proposing any limit to the length of a Fund Summary, as suggested in the Concept Proposal. Provideda mutual fund meets the plain language and presentation requirements mandated by the proposed National Instrument and the FundSummary Form, the only CSA views on the length of a Fund Summary are set out in section 4.1 of the proposed Companion Policy.
Delivery of the Fund Summary
The CSA note the discussion in the Concept Proposal about optimal delivery of the "summary information statement" at the earliestpossible time in the investor's decision making process. The CSA in the Concept Proposal pointed out that the information containedin that document would be most useful to investors if it is delivered to, and received by, investors as soon as possible and not laterthan the trade date.
The proposed National Instrument does not change the delivery requirements or the related withdrawal rights provided for in securitieslegislation.(7)
Accordingly, section 3.2 of the proposed National Instrument provides that delivery of a Fund Summary to investors willsatisfy the requirement under securities legislation to deliver a "prospectus". Part 7 of the proposed Companion Policy sets out theCSA views regarding delivery of Fund Summaries and Fund Prospectuses, including their encouragement to industry participantsto give the Fund Summary to investors in advance of the strict requirements of securities legislation.
The CSA will consider further the issue of whether they should recommend that securities legislation be amended, both for deliveryrequirements and the withdrawal rights for mutual fund investors, at a later date and following experience with the proposed NationalInstrument.
The CSA note the commentary in the Concept Proposal on the requirements for mutual funds under securities legislation to provide"full, true and plain disclosure of all material facts" in prospectus documents and their liability for misrepresentations contained inprospectuses.
The CSA have not changed the fundamental principles behind NP36 in this regard. Fund Summaries will incorporate by referencethe Fund Prospectus and the mutual fund's latest financial statements, by means of a statement to that effect. Therefore,
civil liability will attach to a misrepresentation contained in any of the Fund Summary, the Fund Prospectus or thefinancial statements;
through the combination of the Fund Summary, the Fund Prospectus and its financial statements, a mutual fundwill discharge its obligation to provide full, true and plain disclosure of all material facts; and
a Fund Summary, on its own, will not contain full disclosure of all material facts within the meaning of securitieslegislation.
The Fund Prospectus
Similar to an annual information form under NP36, a Fund Prospectus must be delivered to an investor on request. A FundProspectus is also incorporated by reference into the related Fund Summary, by means of a statement to that effect. A FundProspectus is designed to provide complete disclosure about a mutual fund and is designed to be read on its own without referenceto any other document. Subsection 2.3(2) of the proposed Companion Policy says that a Fund Prospectus is expected to "containinformation that is not necessary to be included in a fund summary ... [it] provides the mutual fund with an opportunity to expanddiscussions of the matters to be described in the fund summary by including additional information that the mutual fund considerswill be useful to some investors".
The proposed National Instrument contains several requirements that the CSA believe will build on and improve the two documentsystem established by NP36:
mutual fund companies will be required to maintain a toll-free line (or accept collect calls at a specified telephonenumber) that investors can use to request copies of the Fund Prospectus and other documents incorporated byreference into the Fund Summary;
documents requested by investors must be sent to them, free of charge, within 3 business days of the request; and
a Fund Summary must contain introductory and back page information that describes the existence of the FundProspectus and other relevant documents, gives the mandated telephone number, gives the fund company Internetsite and e-mail address, if applicable, and also gives the SEDAR Internet site(8)
The proposed National Instrument does not amend or address the requirements under securities legislation to re-file mutual fundprospectus disclosure documents annually. As noted in the Concept Proposal, the Fund Summary and Fund Prospectus will containfinancial and performance information that must be updated at least on an annual basis.
Purpose of the Instruments
The proposed National Instrument mandates the mutual fund prospectus regime to be followed by all conventional or typical mutualfunds in Canada. It requires the preparation and filing of a Fund Summary and a Fund Prospectus by all mutual funds and requiresthat both these disclosure documents be prepared in certain formats.
The proposed Companion Policy describes the central philosophy of the CSA in proposing the mutual fund prospectus disclosureregime; in particular it describes the purpose of a Fund Summary and of a Fund Prospectus. The proposed Companion Policy alsoprovides further explanation of certain of the rules contained in the proposed National Instrument and certain disclosure items of thetwo Forms.
Form 81-101FI sets out the requirements for a Fund Summary and Form 81-101F2 sets out the requirements for a Fund Prospectus.
Model Fund Summary
IFIC has posted a "Model" Fund Summary on its website at http://www.ific.ca. The Model Fund Summary may be obtained from IFICin Toronto by calling (416) 363-2158. Although the Model Fund Summary illustrates disclosure that responds to the requirementsof the Fund Summary Form, it is not intended to be a "CSA approved template" for all Fund Summaries prepared after the proposedNational Instrument comes into force. The Model Fund Summary is an example only of what the CSA are proposing, and the CSAdiscourage fund companies from merely copying this example. Each mutual fund must ensure that its Fund Summary not onlycomplies with the National Instrument and the Fund Summary Form once those instruments are in force, but discloses facts specificto its own circumstances.
Consumer Input into CSA Proposals
Mutual fund prospectus disclosure is intended to assist investors in making informed investment decisions. Accordingly, the CSAconsider it important to receive feedback from investors on the proposals. In addition to publishing the proposed documents, togetherwith this Notice, in the various official publications of the CSA, the CSA will:
forward the proposed documents to those individuals who commented on the Concept Proposal for their reviewand further comment;
forward the proposed documents to relevant consumer groups, fund industry watchers and investor advocates witha request that these groups and individuals review the proposed documents and provide comment to the CSA;
post the proposed documents, together with this Notice, on the Internet website of the Ontario SecuritiesCommission at http://www.osc.gov.on.ca;
request IFIC to post the proposed documents, together with this Notice, on their Internet website athttp://www.ific.ca; and
give commenters the option of providing comments to the CSA via e-mail to any of the e-mail addresses indicatedin this Notice. Hyperlinks to these e-mail addresses will be provided on the OSC website.
Before releasing the proposed documents, the CSA worked with IFIC to organize a group of fund companies that have agreed to "testmarket" the Fund Summary concept. Mackenzie Financial Corporation, Trimark Investment Management Inc., Global StrategyFinancial Inc., Investors Group Inc., CentrePost Mutual Funds and TD Asset Management (for the Green Line Funds) will finalizeFund Summaries for certain of their respective mutual funds in August 1998. These fund companies will then work with an IFIC-retained consumer research group during the comment period for the proposed documents to obtain input from investors who willreceive the Fund Summaries together with the relevant fund's current simplified prospectus.
The results of this consumer input will be provided to the CSA by the end of the comment period on the proposed documents. TheCSA are hopeful that this feedback will enable the CSA to ensure that the proposed mutual fund disclosure system will meet the goalsof the CSA -- namely that investors receive clear, better written and truly informative tools to better understand their choseninvestment vehicle.
Summary of Proposed National Instrument
Part 1. Part 1 sets out the definitions of terms used in the proposed National Instrument and describes the application of theproposed National Instrument to certain mutual funds.
Section 1.1 contains definitions of two terms used in the proposed National Instrument: "educational material" and "financial year".The definition of "educational material" is significant since it defines the only type of additional information that can be included in,or provided with, a Fund Summary.
Section 1.2 provides that terms used in the proposed National Instrument and that will be defined in National Instrument 81-102Mutual Funds or are defined in National Instrument 81-105 Mutual Fund Sales Practices have the same meanings given to them inthose instruments.
Section 1.3 provides that mutual funds that are:
labour-sponsored venture capital corporations;
subject to National Instrument 81-104 Commodity Pools; or
listed and posted for trading on a stock exchange or quoted on an over-the-counter market
cannot use the prospectus disclosure system set out in the proposed National Instrument. The disclosure regime provided for in theproposed National Instrument is applicable only to those mutual funds commonly described as "typical" or "conventional" mutualfunds.
Part 2. Part 2 concerns the disclosure documents and the supporting documents that are required to be filed, delivered or sent tosecurities regulatory authorities by a mutual fund.
Section 2.1 provides that a mutual fund must satisfy the requirements under securities legislation to file a preliminary prospectus,a pro forma prospectus, a prospectus or an amendment to a prospectus by filing the corresponding type of Fund Summary and FundProspectus, each prepared, and the Fund Prospectus certified, in the required form.
Following the coming into force of the proposed National Instrument, a mutual fund to which the proposed National Instrument appliesmust prepare a Fund Summary and a Fund Prospectus. Mutual funds will no longer have the option of preparing a so-called "long-form" prospectus under the various long-form mutual fund prospectus forms set out in securities legislation.(9)
In this Notice, the CSA refer to Form 81-101FI as the "Fund Summary Form" and Form 81-101F2 as the "Fund Prospectus Form".
Each member of the CSA will, by implementing rule, policy or other instrument, provide that the required form for a Fund Summaryis the Fund Summary Form and the required form for a Fund Prospectus is the Fund Prospectus Form. In Ontario, the OntarioSecurities Commission (the "Ontario Commission") proposes to provide for this matter in proposed Ontario Securities CommissionRule 41-502 Prospectus Requirements for Mutual Funds(10)
Section 2.2 sets out in detail the supporting documents required to be filed, delivered or sent to securities regulatory authorities bya mutual fund in connection with the filing of various specified types of Fund Summaries and Fund Prospectuses. The supportingdocuments include material contracts, statements of net assets, drafts marked to indicate changes made to existing Fund Summariesor Fund Prospectuses and any other supporting documents required to be filed, delivered or sent under securities legislation.
Section 2.3 is a technical provision, and notes that a Fund Summary is a prospectus for the purposes of securities legislation.
Part 3. Part 3 describes the relationships between the prospectus and continuous disclosure documents of a mutual fund and setsout which documents must be sent to investors within specified time periods.
Section 3.1 requires that the following documents be incorporated by reference into a Fund Summary of a mutual fund, by meansof a statement to that effect:
its related Fund Prospectus; and
its most recently filed comparative annual and interim financial statements.
Section 3.1 does not change the system established by NP36. It provides that when an investor receives a Fund Summary, he orshe is deemed to have received the related Fund Prospectus and financial statements of the mutual fund.
Securities legislation requires that a prospectus be delivered to investors or their agents, within two business days of a trade. Section3.2 permits satisfaction of this requirement through the delivery of a Fund Summary. Accordingly, all investors must be sent a FundSummary for their mutual fund investment within the time periods established by securities legislation.
The proposed National Instrument does not require that a Fund Prospectus be delivered to all investors. However, section 3.3requires a mutual fund to send, free of charge, its Fund Prospectus to any investor who requests it. Similarly, the mutual fund mustsend, free of charge, its financial statements to any investor who asks for them. These requirements are consistent with NP36.However, section 3.3 adds to NP36, by requiring the material be sent within 3 business days of the investor's request.
In order to ensure that investors have easy access to a mutual fund's disclosure documents, including financial statements, section3.4 requires the mutual fund to establish a toll-free telephone number for (or accept collect telephone calls from) persons orcompanies who want to receive a copy of a Fund Summary or any of the documents incorporated by reference into the FundSummary.
Both section 3.3, in part, and all of section 3.4 describe new requirements for mutual funds and are consistent with the SEC disclosurerules.
Section 3.5 provides that a combined pro forma and preliminary Fund Summary or a combined pro forma and preliminary FundProspectus cannot be used to solicit expressions of interest. This provision carries forward a similar prohibition in NP36.
Part 4. Part 4 sets out the plain language and presentation requirements for a Fund Summary and a Fund Prospectus.
Section 4.1 requires that a Fund Summary and a Fund Prospectus must be prepared using plain language and in a format that assistsreaders to read and understand those documents.
Subsection 4.1(2) describes additional presentation requirements for a Fund Summary. A Fund Summary must:
present all information briefly and concisely;
present the disclosure items in the order stipulated in the Fund Summary Form;
use, as specified, the main headings and sub-headings stipulated in the Fund Summary Form, and may use sub-headings for items in which no sub-headings are stipulated, at the option of the mutual fund;
include only the information that is necessary to respond to the specifically mandated items in the Fund SummaryForm; and
not contain any cross-references to any other documents.
To acknowledge the benefits to investors of additional explanation of matters described in a Fund Summary, section 4.2 permits"educational material", as defined in section 1.1, to be included within a Fund Summary, provided it is presented in a specifiedmanner. The CSA propose that educational information must be separated (for example, in sidebars) from the mandated disclosurein order not to obscure or overshadow the mandated information. However, for the educational material to be of most assistanceto a reader, paragraph 4.2(b) requires that it be close to the related mandated disclosure.
Section 4.3 is a technical section that is necessary to make the proposed disclosure regime work legally within existing securitieslegislation.
Part 5. Part 5 restricts the material that can be bound together with, or attached to, the commercially printed version of a FundSummary. These restrictions have been included so that fund companies do not attach material that might detract from thesignificance of a Fund Summary.
Section 5.1 prohibits any material, other than educational material and the documents incorporated by reference into the FundSummary, from being attached to, or bound with, a Fund Summary. If permitted additional material is to be attached to, or boundwith, the Fund Summary, subsection 5.1(2) only permits the Fund Summary to be preceded by a general front cover and a generaltable of contents.
The CSA wish to encourage fund companies to provide educational material to investors. This is the reason the CSA proposes toallow this material to be included in or otherwise accompany Fund Summaries. Ultimately, once the IFIC-produced industry genericinvestor education document described earlier in this Notice is completed, the CSA hope that fund companies will attach thisdocument to the commercially printed versions of their Fund Summaries.
Part 6. Part 6 governs the calculation of the management expense ratio of a mutual fund. Since NP36 sets out the method to beused by mutual funds in calculating their management expense ratio, Part 6 has been included in the proposed National Instrumentin order to replace the NP36 provisions. However, Part 6 is not purely a matter for mutual fund prospectus disclosure and the CSApropose to move Part 6 to proposed National Instrument 81-102 Mutual Funds when that National Instrument is finalized.
Section 6.1 prescribes the method by which a mutual fund must calculate its disclosed management expense ratio for a financial yearof the mutual fund. With one exception, section 6.1 is consistent with the recommendations contained in the Research Report(11)
forcalculating management expense ratios and with the rules contained in NP36.
Section 6.1 clarifies that a management expense ratio is a number that can be calculated only for a financial year.
Section 6.1 requires that all taxes, including goods and services taxes and capital tax and income tax, must be included as expensesin the calculation; NP36 permitted mutual funds to exclude all taxes (arguably including GST). The Research Report recommendedthat interest, GST and provincial sales taxes be included, but that capital taxes and income taxes continue to be excluded from thecalculation. The CSA consider that all taxes are as much expenses of the mutual fund as are any other category of expenses andaccordingly must be included in the management expense ratio calculation.
Subsection 6.1(2) sets out specific additional disclosure requirements applicable in which any fees or expenses that were otherwisepayable by the mutual fund were voluntarily waived or absorbed by its related fund company. These disclosure requirements aredesigned to illustrate to an investor that the management expense ratio of a particular mutual fund was lower that it would have beenhad the mutual fund paid all expenses it was legally responsible to pay.
Subsections 6.1(3) and (4) set out specific requirements for calculating the management expense ratios of those mutual funds thatdo not pay any management fees directly; that is, where management fees are charged directly to investors. In order to permit aproper comparison of expense ratios between all mutual funds, regardless of fee structure, the CSA propose that the managementfees paid directly by investors be included in the calculation of management expense ratio of the relevant mutual funds.
Part 6 does not bring forward Item 10, Instruction 4 of Schedule A in NP36. Instruction 4 sets out the rule for calculating managementexpense ratios of those mutual funds that invest in other mutual funds. The CSA are presently considering the appropriate rules inthis regard. When proposed National Instrument 81-102 Mutual Funds is released for a further comment period, the CSA will includethe appropriate rules for the calculation of management expense ratio by these mutual funds.
Part 7. Part 7 provides for exemptions from the proposed National Instrument.
Section 7.2 provides that a receipt issued by the securities regulatory authorities for a Fund Summary and Fund Prospectus, or anamendment to one of those documents, is evidence that the securities regulatory authorities have granted an exemption, providedthat certain conditions are satisfied.
Part 8. Part 8 sets out the date the proposed National Instrument is to become effective, and provides for a transition period.
The CSA presently propose that the proposed National Instrument become effective on July 1, 1999, which is the date that NP36ceases to be a rule in Ontario. Section 8.1 provides for this effective date.
Section 8.2 is designed to allow for a smooth transition to the regime contemplated by the proposed National Instrument. Wherea mutual fund has filed a preliminary, pro forma or combined pro forma and preliminary simplified prospectus and annual informationform under NP36 prior to July 1, 1999, and provided that it complies with either NP36, as if NP36 or a rule based on NP36 were inforce, it may continue to distribute its securities under the final simplified prospectus for the time period permitted by securitieslegislation. In such circumstances the mutual fund will not be required to comply with the proposed National Instrument until the dateof its next renewal filing.
Summary of Proposed Forms
Fund Summary Form
General Instructions. The general instructions provide basic guidance for preparing a Fund Summary, and discuss plain languageand format, the order in which information is to be presented and the use of photographs and artwork. The CSA encourage brief andconcise responses to the disclosure items. The general instructions also describe the mandated outline for a Fund Summary to helpmutual funds present the required disclosure using the required "catalogue" approach.
Item 1. Front Cover Disclosure.
Item 1 describes the disclosure to be included on the front cover of a Fund Summary, including thename of the mutual fund, mutual funds or mutual fund family to which it pertains, and a plain language warning that the CSA havenot expressed an opinion about the mutual funds covered by the Fund Summary.
Item 2. Table of Contents.
Item 2 makes a table of contents optional for a Fund Summary covering only one mutual fund, butmandatory for all other Fund Summaries. The table of contents is required to be on a separate page, which may be the inside frontcover. The name of each mutual fund included in the Fund Summary must appear in the table of contents, together with the pagenumber where the fund-specific information for each mutual fund begins.
Item 3. Introductory Disclosure.
Item 3 sets out certain required introductory disclosure that describes the purpose of the FundSummary and provides information about how the investor may obtain additional documents and information about the mutual fund.
All disclosure required in the Fund Summary Form must be included in a Fund Summary in substantially the words provided in theFund Summary Form.
Item 4. General Investment Risks.
Item 4 requires disclosure in plain language of the nature of a mutual fund and of the risk factorsor other investment considerations associated with investing in mutual funds that investors should take into account. This disclosureis designed to warn investors of the general risks associated with investments in mutual funds. Item 4 also gives the mutual fundthe option of describing risks that are applicable to more than one of the mutual funds described in the Fund Summary; this disclosurewould otherwise be provided in Item 10.
Item 5. Organization and Management Details if Fund Summary Describes More than One Mutual Fund.
Item 5 requires disclosureof basic information about the firms that provide specified services to the mutual funds described in a Fund Summary. Theinformation can be presented in a table or a diagram at the option of the fund company.
Item 5 is designed to be a quick reference for an investor to determine the names and locations of those firms providing services tothe mutual funds covered by the Fund Summary.
This Item requires details about the firms who provide services to all the mutual funds covered by the Fund Summary. If one mutualfund has a service provider that is different from the others, then the information about that category of service provider must bedisclosed individually for each mutual fund under Item 6 in the fund-specific, or "catalogue", portion of the Fund Summary.
Item 6. Fund-Specific Information.
The fund-specific information for each mutual fund covered under a Fund Summary begins withItem 6 and continues to Item 13. Each mutual fund covered by a Fund Summary must provide the information required by Items 6to 13 in consecutive pages. The Fund Summary must present this disclosure for each mutual fund using a "catalogue", or fund-by-fund, approach.
Section 6.1 applies if a Fund Summary contains disclosure about only one mutual fund. It is designed to be a quick reference tableor diagram to enable an investor to learn the basic specified facts about the mutual fund and its service providers.
Section 6.2 applies if a Fund Summary contains disclosure about more than one mutual fund and must be completed for each mutualfund covered by the Fund Summary using the "catalogue", or fund-by-fund, approach. The table required by Section 6.2 must bepreceded by a heading setting out the name of the mutual fund.
Section 6.2 requires disclosure of any of the information required by Item 5 that relates to a specific mutual fund and that is notcommon to all the mutual funds covered by the Fund Summary. It also requires basic information about the mutual fund's fund typeor category, its commencement date, its status as a qualified investment for tax plans and its fees and expenses. The informationmust be presented in tabular form.
Item 7. Suitability.
Item 7 requires a brief statement about the suitability of the mutual fund for particular investors, describing thecharacteristics of the investor as well as the portfolios for which the mutual fund may or may not be an appropriate investment.
The CSA note that the SEC disclosure rules make disclosure of suitability optional. The SEC noted in its release of its final rules thatcommenters argued that the disclosure originally proposed by the SEC could be viewed as requiring a fund to determine whetherits shares, among other things, are a suitable investment for a particular investor. Commenters also noted that the disclosure wouldtend to be generic and not meaningful or useful for investors.
When reviewing existing simplified prospectuses, the CSA found examples of suitability disclosure that was specific to the applicablemutual fund and would be useful information for investors. However, the CSA seek specific comment on whether suitability disclosureshould be mandatory or optional.
Item 8. Investment Objectives.
Item 8 requires disclosure of the investment objectives of the mutual fund, including information thatdescribes the fundamental nature of the mutual fund or the fundamental features of the mutual fund that distinguish it from othermutual funds. The disclosure should include the types of securities in which the mutual fund will primarily invest and it should indicatewhat other types of securities may form part of the mutual fund's portfolio assets under normal market conditions. The disclosureshould also indicate if the mutual fund does or intends to (or if its name implies that it will) invest solely or a specific portion of itsassets in a particular type of issuer, concentrate its investments geographically or by industry or invest in portfolio assets other thansecurities. Finally, if the name or marketing of the mutual fund makes it appear that a particular investment strategy is an essentialaspect of the mutual fund, this strategy should be disclosed as an investment objective.
The CSA view Item 8 as extremely important disclosure. Item 8 will cause mutual funds to give more specific information about theirinvestment objectives that will enable investors to understand the nature of their mutual fund investment. Current disclosure providedby many mutual funds about their investment objectives is often vague and completely uninformative. For example, the CSA expectthat a Canadian equity mutual fund will no longer be able to disclose only that its fundamental investment objective is to achievecapital appreciation. This type of statement will not be acceptable disclosure under Item 8.
National Policy Statement No. 39 and its proposed replacement instrument, proposed National Instrument 81-102 Mutual Funds,require that unitholder approval be obtained before any change in a fundamental investment objective of a mutual fund. The CSApropose to amend proposed National Instrument 81-102 to clarify that for unitholder approval purposes, the fundamental investmentobjectives of a mutual fund are those set out in response to Item 8.
Item 9. Investment Strategies.
Item 9 requires a description of the principal investment strategies that the mutual fund intends touse to achieve its investment objectives, as well as a description of the process by which the portfolio adviser selects securities forthe portfolio. If a mutual fund intends to use permitted derivatives, Item 9 requires certain disclosure about their use for hedging andnon-hedging purposes. If a mutual fund is not a money market fund, and intends to engage in active and frequent trading of portfoliosecurities as a principal investment strategy, such that the portfolio turnover rate of the mutual fund is expected to be more than 70per cent, Item 9 requires disclosure of certain tax consequences. Finally, if a mutual fund may depart temporarily from its investmentobjectives as a result of an adverse market or other considerations, any temporary tactics the portfolio adviser may use or intendsto use in response must be disclosed.
Through Items 8 and 9, the CSA intend that mutual funds will better articulate their investment objectives and differentiate theobjectives from the strategies followed to achieve them.
Item 10. Risks.
Item 10 requires disclosure of specific information about any material risks associated with an investment in theparticular mutual fund. Item 10 also requires certain disclosure for money market funds. The disclosure required under this Itemis to be provided in the context of the mutual fund's investment objectives and investment strategies, outlining the risks associatedwith any particular aspect of those investment objectives and investment strategies. The disclosure is also required to include adiscussion of general market, political, market sector, liquidity, interest rate, foreign currency, diversification, credit, legal andoperational risks, as appropriate.
The disclosure provided in response to Item 10 will exclude the general risks applicable to an investment in any mutual fund (whichwill have been disclosed under Item 4). Accordingly, the CSA expect that investors will have a better understanding of the specificrisks of investing in any particular mutual fund.
Item 11. Past Performance.
Item 11 requires certain disclosure about the past performance of the mutual fund. This disclosure itemis new for mutual fund prospectus disclosure in Canada. It parallels requirements imposed by the SEC in the SEC disclosure rulesand is consistent with the discussion about performance disclosure contained in the Research Report.
Item 11 applies to mutual funds that have been in operation for longer than one completed financial year. These funds may providedisclosure of performance information both in sales communications and in their prospectus documents under the proposed FundSummary Form. So-called "young funds" (mutual funds less than one year old) may not provide this disclosure.
Section 11.1 requires the mutual fund to provide a bar chart showing its annual return for each of the 10 most recently completedcalendar years (or since inception, if the mutual fund is less than 10 years old). The CSA are of the view that this disclosure willillustrate that the mutual fund's return changes from year to year, giving investors a sense of the volatility (as volatility is commonlyunderstood) of the mutual fund. The returns must be shown in chronological order, with the most recent year on the right of the barchart. Annual total return must be calculated as required in section 15 of proposed National Instrument 81-102 Mutual Funds (whichwill replace section 16 of existing National Policy Statement No. 39).
Section 11.2 requires a mutual fund to include a line graph illustrating its past performance for each of the least of the past 10calendar years, the time since inception of the mutual fund and the time since the mutual fund began distributing its securities undera prospectus, simplified prospectus or fund summary. The line graph will illustrate the growth of a hypothetical $10,000 investmentin the mutual fund.
Section 11.2 requires that the growth of the $10,000 investment in the mutual fund be compared to the change in one or more broad-based securities market indices for the same time period. A mutual fund has the option of also comparing the mutual fund to a morenarrowly based market index that reflects the market sectors in which the mutual fund invests or to a financial index, such as theConsumer Price Index.
A definition of "appropriate broad-based securities market index" is provided. The index must be administered by an unaffiliatedorganization and it must be adjusted by that organization to reflect the reinvestment of dividends or interest paid on the securitiesin the index.
The line graph requirement of Section 11.2 is consistent with the SEC disclosure rules and is designed to give investors an illustrationof past performance that is expected to be more visually informative for certain investors than the tables required by Section 11.3.
Section 11.3 requires a mutual fund to provide a table showing its annual compound total returns for the ten, five, three and one yearperiods ended on December 31 in the year immediately before the year in which the Fund Summary is filed (or since inception andeach applicable period to the longest applicable period for those mutual funds younger than 10 years). Annual compound totalreturns for the periods indicated must be calculated as required in section 15 of proposed National Instrument 81-102 Mutual Funds.The returns must be shown in chronological order, with the one year return on the right of the table. These returns must also becompared to the returns of the index or indices chosen by the mutual fund under section 11.2 for the same period. The requirementto compare the mutual fund's past performance over the periods indicated is consistent with the SEC disclosure rules and therecommendations made in the Research Report.
The comparison of mutual fund performance to a broad-based market index is not intended to provide a benchmark for theperformance of the mutual fund; it is designed simply to give investors a better sense of how the mutual fund performed relative tothe performance of the overall financial market. The CSA expect that the performance comparisons will provide useful informationto investors so that they can better gauge their investment options. The CSA do not propose to mandate the indices against whichparticular categories of mutual funds should compare their performance. The CSA acknowledge the work of the Investment FundsSteering Group in its report (supra note 2 at pages 67-71) in defining categories of mutual funds and recommending that eachcategory of fund benchmark their performance against certain defined indices. When the CSA are considering the commentsreceived on the proposed National Instrument, the CSA will consider the issue of mandating, or at least encouraging, the use ofdefined indices by the different categories of mutual funds.
Sections 11.2 and 11.3 do not apply to money market funds.
Item 12. Distribution Policy.
Item 12 requires the mutual fund to state whether distributions are made by the mutual fund in cash orreinvested in securities of the mutual fund, and how frequently distributions are made.
Item 13. Financial Highlights.
Item 13 requires detailed disclosure of key financial information about the mutual fund for its past fivecompleted financial years (or since inception for those funds younger than five years). Item 13 mandates four tables; one illustratingthe mutual fund's size, a second setting out the mutual fund's net asset value, or unit or share price, a third setting out the mutualfund's distributions per unit or share and a fourth showing the mutual fund's fees and expenses and portfolio turnover rate for therelevant financial years.
The financial information must be derived from the annual financial statements for the mutual fund.
The financial information to be provided by a mutual fund in a Fund Summary is consistent with the recommendations made in theResearch Report for "financial highlights" to be provided in financial statements of the mutual fund. Item 13 is also consistent withthe SEC disclosure rules.
All of the financial disclosure to be provided in Item 13, except for portfolio turnover rate, is presently disclosed in the financialstatements of the mutual fund. Portfolio turnover rate is a new disclosure item. The CSA believe that taxable investors in particular(that is, those investors who do not invest in a mutual fund through a registered tax plan) should take account of the portfolio turnoverrate for a mutual fund having regard to the significance that a high portfolio turnover rate will have on their tax position.
The CSA view is that this financial information will be more relevant and informative to most investors than the complete financialstatements of the mutual fund. Accordingly, the CSA have not brought forward the requirement contained in NP36 that a mutual funddeliver its full financial statements along with a simplified prospectus on a trade in securities of that mutual fund. Investors who wishto review the full financial statements of a mutual fund may request them. Section 3.3 of the proposed National Instrument will applyto such a request.
Item 14. Purchases, Transfers and Redemptions.
Once each mutual fund covered by a Fund Summary has responded to Items 6to 13, the mutual funds then must collectively respond to Item 14. Item 14 is not fund-specific disclosure. It requires a briefdescription of how an investor can purchase and redeem securities of the mutual fund or mutual funds offered in a Fund Summary.Item 14 requires a mutual fund to describe how an investor can switch his or her investment from one fund to another. Variousmatters associated with purchases, redemptions and switches must be disclosed.
Item 15. Optional Services Provided by the Mutual Fund Organization.
Item 15 requires disclosure about any optional servicesoffered by a mutual fund company to typical investors.
Item 16. Fees and Expenses.
Section 16.1 requires a table that summarizes the fees and expenses payable both by the mutual fundor funds described in the Fund Summary and by investors directly, including management fees and the fees for any optional servicesdescribed under Item 15.
Section 16.2 requires a number of tables illustrating the effect of the fees associated with the mutual fund's various purchase optionson an initial $1,000 investment in the mutual fund. These tables are designed to better illustrate, via simple examples, the fees thatare paid by investors when they invest in mutual funds and the effect of these fees on an investor's return on investment.
The SEC disclosure rules require a mutual fund to include an example of the fees and expenses payable by the mutual fund and byan investor expressed as a dollar figure for one, three, five and ten year periods, assuming a five percent annual return and that thefund's operating expenses remained the same. The SEC described that they intend this example as a "relatively straightforwardmeans of illustrating the effect of costs in investing in a fund over time". The CSA share the SEC's objective of giving investors ameans of understanding and comparing the expenses of different funds in an easy to understand format. However, the FundSummary Form does not require an example similar to that required by the SEC. Since most Fund Summaries will likely providedisclosure about more than one mutual fund, this fee example would be a fund-specific disclosure item. Before deciding to requirean example of this nature, which would add to the length of the fund-specific information, the CSA would like comment on whetheran example would be useful and meaningful disclosure of the effect of the fees and expenses payable by a fund and an investor.
Item 17. Dealer Compensation.
Item 17 requires brief disclosure of certain sales practices and ownership interests as required byNational Instrument 81-105 Mutual Fund Sales Practices. The Instructions to Item 17 describe the extent of the required disclosure.
Item 18. Income Tax Considerations for Investors.
Item 18 requires brief disclosure of the income tax consequences for investorsof income and capital gains distributions made by the mutual fund, as well as the gains or losses that occur on the disposition ofsecurities of the mutual fund by investors. The disclosure must include, among other things, an explanation of the different taxtreatment applicable to mutual fund securities held in a registered tax plan as compared to those held in non-registered accounts.
Item 19. Statement of Rights.
Item 19 requires a brief plain language explanation of an investor's statutory rights of rescission anddamages, including his or her right of action for misrepresentations contained in the Fund Summary and in any documentsincorporated by reference into the Fund Summary.
Item 20. Back Cover.
Item 20 requires certain disclosure to be stated on the back cover of the Fund Summary that identifies therelevant mutual fund, mutual funds or mutual fund family covered by the Fund Summary. Information about how investors can obtainadditional information about a particular mutual fund must be repeated on the back cover page.
Fund Prospectus Form
General Instructions. The general instructions provide basic guidance to mutual funds in preparing a Fund Prospectus, and includediscussions relating to the purpose of a Fund Prospectus, the extent of the information to be included, the use of photographs andartwork, and an explanation of the "catalogue" approach that is required where a Fund Prospectus covers more than one mutual fund.
The general instructions emphasize:
- that a Fund Prospectus is intended to be a complete "free-standing" disclosure document -- an investor should notneed to review any other document, except the financial statements for the mutual fund, in order to receive "full,true and plain disclosure of all material facts" related to the mutual fund;
although the Fund Prospectus Form cross-refers to the disclosure items required in the Fund Summary Form, theCSA expect that a mutual fund will include additional information in the Fund Prospectus, as necessary, in orderto satisfy its obligation to provide "full" disclosure of all material facts about the mutual fund;
other than the "catalogue" approach to be followed in respect of fund-specific information, a mutual fund will befree to provide the required disclosure in a Fund Prospectus in any order and style it chooses, provided it followsthe plain language and presentation rule established by the proposed National Instrument; and
a mutual fund may include additional information in the Fund Prospectus.
Item 1. Front Page Disclosure.
Item 1 requires front page disclosure that essentially follows the disclosure required by Item 1 of theFund Summary Form.
Item 2. Table of Contents and Headings.
Item 2 requires a table of contents that lists each mutual fund covered in a FundProspectus and the page number where the fund-specific information about each mutual fund begins. Item 2 also requires the fund-specific and general parts of the Fund Prospectus to be distinguished by the use of headings.
Item 3. Name, Formation and History of the Mutual Fund.
Item 3 requires disclosure of certain basic information about a mutual fund,such as the address of its head office, the laws under which the mutual fund was formed, any former name of the mutual fund andany major events affecting the mutual fund during the last 10 years (or since its formation, for those mutual funds that are youngerthan 10 years old).
Item 4. Investment Objectives and Strategies.
Item 4 requires disclosure of the information required by Items 8 and 9, as well aspart of Item 6, of the Fund Summary Form. Mutual funds may expand upon the abbreviated Fund Summary disclosure in respondingto this Item, and all other Items in the Fund Prospectus that require the same disclosure as required by the Fund Summary Form.
Item 4 also requires disclosure about the investment restrictions and practices mandated by securities legislation and any additionalrestrictions on investments adopted by the mutual fund. Any exemptions from the investment restrictions and practices prescribedby securities legislation granted by the Canadian securities regulatory authorities also must be described.
Item 4 requires disclosure about how a mutual fund can change its investment objectives, strategies and investment restrictions andpractices. The qualification of the mutual fund for registered tax plans must also be disclosed.
Item 5. Suitability.
Item 5 requires disclosure of the information required by Item 7 of the Fund Summary Form.
Item 6. Risk Factors.
Item 6 requires disclosure of the information required by Items 4 and 10 of the Fund Summary Form. If themutual fund intends to use permitted derivatives, Item 6 also requires certain disclosure relating to the associated risks, as well asthe policies and practices of the mutual fund to manage those risks. If the mutual fund offers more than one class or series ofsecurities, Item 6 requires disclosure of certain associated risks.
A mutual fund may expand upon the abbreviated Fund Summary disclosure about risks of investing in the mutual fund in respondingto this Item in the Fund Prospectus.
Item 7. Past Performance.
Item 7 requires inclusion of the disclosure required by Item 11 of the Fund Summary Form.
Item 8. Financial Highlights.
Item 8 requires the inclusion of the disclosure required by Item 13 of the Fund Summary Form.
Item 9. Description of Securities Offered by the Fund.
Item 9 requires a description of the mutual fund securities offered by the FundProspectus, including their material attributes and characteristics, such as dividend or distribution rights, voting rights, liquidationrights, conversion rights and redemption rights. Item 9 also requires disclosure of certain securityholder rights of approval.
Item 10. Description of Other Securities Offered.
Item 10 requires disclosure of certain information relating to other classes or seriesof securities of the mutual fund.
Item 11. Calculation of Net Asset Value.
Item 11 requires certain disclosure about the method of calculating the mutual fund's netasset value, as well as the frequency at which it is determined and, if applicable, the method by which a money market mutual fundintends to maintain a constant net asset value per security.
Item 12. Purchases and Transfers.
Item 12 requires disclosure relating to purchasing securities of the mutual fund, including theissue price of the securities, distribution arrangements and all available purchase options and the associated differences in fees andexpenses. A mutual fund must also disclose how an investor can switch investments between mutual funds.
Item 13. Redemption of Securities.
Item 13 requires disclosure of the procedures to be followed by an investor who wishes to redeemsecurities of the mutual fund, as well as the redemption price of the securities and the circumstances under which the mutual fundmay suspend redemptions of the securities.
Item 14. Optional Services Provided by the Mutual Fund Organization.
Item 14 requires disclosure of the information required byItem 15 of the Fund Summary Form.
Item 15. Valuation of Portfolio Securities.
Item 15 requires a mutual fund to provide a description of the methods used to value themutual fund's various types or classes of portfolio assets and liabilities for the purpose of calculating net asset value, as well asdetails of any discretion given to a manager to deviate from the mutual fund's specified valuation practices. If the manager hasexercised such discretion within the past three years, the mutual fund must disclose the circumstances giving rise to the deviationand describe how the manager exercised its discretion.
Item 16. Responsibility for Fund Operations.
Section 16.1 requires a mutual fund to describe how the operations of the mutual fundare administered and who carries out these functions. For example, the description would include the overall management andadministration of the mutual fund, its portfolio management, the distribution of the mutual fund's securities and the custodianshipand brokerage of the portfolio assets.
Section 16.2 requires disclosure about the manager of the mutual fund and the management agreement, together with the namesof, and specified information about, the directors and officers of the manager.
Section 16.3 requires disclosure about the mutual fund's portfolio management, including whether or not the manager provides theseservices. The mutual fund must disclose information relating to those individuals employed by the manager or a portfolio adviser,as applicable, who are involved in making investment decisions for the fund, including their names, title and length of service andtheir responsibilities. If a third party portfolio adviser acts as a portfolio manager for the mutual fund, the adviser must be identifiedand the agreement described.
Disclosure of the names and experience of the individuals responsible for portfolio management of the mutual fund is a newdisclosure item for mutual funds in Canada. This disclosure has been added because of the importance of the portfolio managementfunction.
The CSA are considering what, if any, disclosure a mutual fund should make if an individual employed by the manager or portfolioadviser stops providing portfolio management services in respect of the mutual fund. The issue is most acute in cases in which themutual fund has promoted that individual's expertise or reputation in its advertising. The CSA will consider this issue in finalizingproposed National Instrument 81-102 Mutual Funds and the obligation contained in that proposed Instrument to disclose "significantchanges".
Section 16.4 requires disclosure about how the mutual fund allocates its brokerage business to persons or companies engaged indistributing the mutual fund's securities or who furnish statistical research or other services to the mutual fund or its manager or toany "affiliated entity", as defined in the Instructions contained in Item 17.
Section 16.5 requires disclosure concerning the principal distributor of the mutual fund, including a description of the essential termsof any distribution agreement with the principal distributor.
Section 16.6 requires disclosure relating to the individual directors and officers or trustees of a mutual fund, including their names,addresses, principal occupations for the last five years, information about other companies where these individuals are principallyoccupied as officers and positions held in the mutual fund, as applicable.
Section 16.7 requires disclosure about the custodian, including the nature of the custodian's business and any principal sub-custodian's business and the sub-custodial arrangements of the mutual fund.
Section 16.8 requires disclosure of the identity and address of the auditor.
Section 16.9 requires disclosure relating to the registrar of securities of the mutual fund.
Section 16.10 requires disclosure about all other persons or companies that provide services in respect of the mutual fund, such asthose relating to portfolio valuation, unitholder records, fund accounting or other material services.
Item 17. Conflicts of Interest.
Section 17.1 requires disclosure of principal holders of securities of the mutual fund and of themanager of the mutual fund. A principal holder is generally a person or company that holds more than 10 percent of voting securitiesof the mutual fund or of the manager. If the principal holder is itself a corporation, Section 17.1 requires disclosure of the controllingshareholders of that corporation.
If a principal shareholder of the mutual fund or its manager also is a principal shareholder of the principal distributor of the mutualfund, this fact must be disclosed.
Section 17.1 also requires disclosure of the percentage of securities of the mutual fund and of the manager held by directors, trusteesand senior officers of the mutual fund, of the manager or of any service provider to the mutual fund. Certain ownership thresholdsare provided.
Section 17.2 requires disclosure about any "affiliated entity" that provides services to the mutual fund or the manager. A mutual fundmay use a diagram to illustrate the relationships. The mutual fund must disclose that the amount of fees received from the mutualfund by each affiliated entity is contained in the audited financial statements of the mutual fund. Section 17.2 also requires certaindisclosure about any director or senior officer of the mutual fund or of the manager who is also a director or senior officer of anyservice provider that is an "affiliated entity". The Instructions for Section 17.2 provide a definition for the term "affiliated entity".
If the mutual fund is dealer managed within the meaning of proposed National Instrument 81-102 Mutual Funds, then Section 17.3requires disclosure of this fact and that the mutual fund is subject to certain investment restrictions.
Item 17 should produce more precise descriptions of the relationships between the various entities providing services to the mutualfunds, so that investors will be made aware of the potential conflicts of interest. Item 17 is designed to replace Items 13, 15 and 16of Schedule B of NP36 and encourage more relevant and informative disclosure about the relationships between service providersto the mutual fund than those Items.
Item 18. Fund Governance.
Item 18 requires disclosure of detailed information concerning the governance of the mutual fund,including policies concerning conflicts of interest and business practices, whether the mutual fund has any independent directors andtrustees and the identities of those individuals or any independent business conduct review committee.
Item 18 is a new disclosure item for mutual funds in Canada. The CSA will monitor the disclosure provided under this Item to ensurethat Item 18 continues to require disclosure of appropriate information. The CSA will also monitor whether or not an abbreviatedversion of this disclosure should be included as part of the Fund Summary.
Item 19. Fees and Expenses.
Section 19.1 requires the disclosure of the information required by Item 16 of the Fund SummaryForm.
Section 19.2 requires additional specified disclosure if the management fees of the mutual fund are payable directly bysecurityholders.
Section 19.3 requires disclosure of the details of any management fee rebate program made available by the mutual fund.
Item 20. Dealer Compensation.
Item 20 requires the disclosure of the information required by Item 17 of the Fund Summary Form.
Item 21. Distribution Policy.
Item 21 requires the disclosure of the information required by Item 12 of the Fund Summary Form.
Item 22. Income Tax Considerations.
Item 22 requires certain disclosure about the taxation of the mutual fund and the income taxconsequences to holders of the securities. Item 22 also requires disclosure of the information required by subsections (3) and (4)of Item 18 of the Fund Summary Form.
Item 23. Remuneration of Directors, Officers and Trustees.
Item 23 requires the disclosure about compensation paid to executiveofficers of the mutual fund required by securities legislation, if the management functions of the mutual fund are carried out byemployees of the mutual fund. Item 23 also requires disclosure of compensation paid to the directors or the members of anindependent governance or advisory board of the mutual fund, either in that capacity or as consultants or experts.
Item 23 significantly re-works Items 11 and 12 of Schedule B of NP36 and is designed to better reflect the legal and managementstructure of most conventional mutual funds in Canada.
Item 24. Material Contracts.
Item 24 requires disclosure of certain particulars of the material contracts of the mutual fund, includingthe location where these contracts may be reviewed by investors.
Item 25. Legal and Administrative Proceedings.
Item 25 requires a description of, and certain details about, specified legal andadministrative proceedings related to the mutual fund or its manager or principal distributor. Item 25 also requires disclosure of anysanctions imposed by any court or securities regulator on the manager, or a director or officer of either the mutual fund or themanager within the past 10 years relating to trading in securities, promotion or management of a publicly offered mutual fund, or theftor fraud.
The requirement to disclose sanctions imposed by any court or securities regulator for securities related transgressions is new andparallels disclosure requirements provided for by the proposed Ontario rule 41-501 General Prospectus Requirements for non mutualfund issuers(12)
Item 26. Other Material Information.
Item 26 permits disclosure of any other material information about a mutual fund.
Item 27. Purchasers' Statutory Rights.
Item 27 provides plain language disclosure to explain an investor's statutory rights ofrescission and damages, including the right of action for misrepresentations contained in the Fund Summary and in any documentsincorporated by reference into the Fund Summary.
Items 28, 29, 30, 31. Certificates of the Mutual Fund, the Manager, the Promoter and of the Principal Distributor.
Items 28, 29, 30and 31 require certificates in specified forms by the relevant persons or companies.
Item 32. Exemptions and Approvals.
Item 32 requires disclosure of all exemptions from, or approvals under, the proposed NationalInstrument, National Instrument 81-102 Mutual Funds, National Instrument 81-105 Mutual Fund Sales Practices or National PolicyStatement No. 39 that were obtained by the mutual fund or the manager and that continue to be relied upon by the mutual fund orthe manager. Item 32 also requires disclosure about material breaches of securities legislation by the mutual fund or the managerin the last completed financial year of the mutual fund.
Item 33. Back Cover.
Item 33 requires essentially the same disclosure as that required by Item 20 of the Fund Summary Form.
Summary of Proposed Companion Policy
Part 1. Part 1 describes the purpose of the proposed Policy, which is to state the views of the CSA on various matters relating tothe proposed National Instrument and the Forms.
Part 2. Part 2 describes the overall purpose of disclosure regime proposed by the proposed National Instrument, including the centralprinciples behind the Fund Summary and the Fund Prospectus.
Section 2.1 sets out the central objective of the proposed disclosure regime: to ensure that investors receive disclosure documentsthat clearly and concisely state information that they should consider when making an investment decision about a mutual fund. Twocentral concepts of the proposed disclosure regime are described:
plain language must be used in preparing a Fund Summary and a Fund Prospectus; and
all investors must receive the Fund Summary and be able to get a copy of the Fund Prospectus and financialstatements if they wish further information about a mutual fund.
Section 2.2 describes the central objectives of the CSA in requiring preparation of a Fund Summary and explains the intentions ofthe CSA in providing detailed instructions for preparation of a Fund Summary.
Section 2.3 describes the central objectives of the CSA in requiring preparation of a Fund Prospectus and explains the purpose behinda Fund Prospectus.
Section 2.4 describes the treatment of a mutual fund's financial statements in the proposed mutual fund disclosure regime; they areincorporated by reference into the Fund Summary and must be sent to investors if they ask for them.
Section 2.5 reminds mutual funds that documents that are "filed" with a securities regulator are on the public record, while documentsthat are "delivered" or "sent" to investors are not necessarily on the public record. This section relates to section 2.2 of the proposedNational Instrument.
Section 2.6 relates to the supporting documents required to be filed with a Fund Summary and Fund Prospectus in the variousprovincial jurisdictions.
Part 3. Part 3 contains a discussion of plain language and presentation principles that can be used in preparing a Fund Summaryand Fund Prospectus.
Section 3.1 notes that the purpose of requiring disclosure documents to be written in plain language is to ensure that they will be easyto read, and therefore more widely read by investors than traditional prospectuses. Section 3.1 contains a number of plain languageprinciples that the CSA recommend that mutual funds adopt in preparing their disclosure documents.
Section 3.2 relates to the formatting of a Fund Summary and Fund Prospectus and sets out various presentation ideas that couldbe considered in preparing these documents.
Part 4. Part 4 discusses issues relating to the consolidation of information about more than one mutual fund in a single FundSummary and Fund Prospectus.
Section 4.1 points out that the proposed National Instrument contains no restrictions on the number of mutual funds that may beincluded in a single Fund Summary or Fund Prospectus. However, including too many mutual funds may mean that a FundSummary and Fund Prospectus do not satisfy the requirements that they be prepared using plain language and in a format thatassists readability and comprehension.
Part 5. Part 5 points out several matters relating to Fund Summaries:
Section 5.2 refers to the "catalogue" or fund-by-fund approach required by the Fund Summary Form;
Section 5.3 refers to the prohibition in the proposed National Instrument that a Fund Summary not include anyadditional information, other than educational material, and describes the reason for this prohibition and also forthe rules about educational material; and
Section 5.4 reminds mutual funds that they must use the headings and sub-headings prescribed by the FundSummary Form.
Part 6. Part 6 discusses several issues relating to a Fund Prospectus:
- Section 6.2 emphasizes that CSA expect that industry participants will encourage investors who want moreinformation about a mutual fund to both request and read Fund Prospectuses; and
- Section 6.3 discusses issues relating to the addition of extra information in a Fund Prospectus. Any additionalmaterial is also subject to the plain language and format requirements of the proposed National Instrument.
Part 7. Part 7 discusses the CSA views on the delivery of a Fund Summary, a Fund Prospectus, non-educational material andfinancial statements to investors.
Section 7.1 states that although the proposed National Instrument only requires delivery of a Fund Summary to each investor, amutual fund is free to provide its Fund Prospectus and financial statements to all investors. Section 7.1 also encourages industryparticipants to make a Fund Summary available to investors as soon as possible, in advance of the requirements to deliver thisdocument under securities legislation.
Section 7.2 notes that non-educational material, such as a promotional brochure, is permitted to be delivered with, but may not beincluded within, wrapped around, or attached or bound to, either the Fund Summary or Fund Prospectus.
Section 7.3 reminds mutual funds that statements of portfolio transactions, as part of the financial statements, are incorporated byreference in a Fund Summary, and therefore must be sent to investors if they ask to receive the fund's financial statements.
Part 8. Part 8 discusses the need for multiple or separate applications for exemptions.
Section 8.1 points out that a person or company that obtains an exemption from a provision of the proposed National Instrument neednot apply again for the same exemption at the time of each Fund Summary and Fund Prospectus refiling unless there has been achange in an important fact on which the exemption was based. Section 8.2 also points out, however, that the requirements on thispoint may differ in Quebec.
Authority for Proposed National Instrument - Ontario
In those jurisdictions in which the proposed National Instrument and Forms are to be adopted as a rule or regulation, the securitieslegislation in each of those jurisdictions provides the securities regulatory authority with rule-making or regulation-making authorityin respect of the subject matter of the proposed National Instrument and Forms.
In Ontario, the following sections of the Securities Act (Ontario) (the "Ontario Act") provide the Ontario Commission with authorityto make the proposed National Instrument and the Forms.
Paragraph 143(1)16 of the Ontario Act authorizes the Ontario Commission to make rules varying the application of the Ontario Actto establish procedures for or requirements in respect of the preparation and filing of preliminary prospectuses and prospectuses,including requirements in respect of distribution of securities by means of a prospectus incorporating other documents by referenceand requirements in respect of distribution of securities by means of a simplified prospectus.
Paragraph 143(1)31 authorizes the Ontario Commission to make rules regulating mutual funds and the distribution of the securitiesof the funds, including varying the application of Part XV (Prospectuses - Distribution) or XVIII (Continuous Disclosure) of the OntarioAct by prescribing additional disclosure requirements in respect of the fund and requiring or permitting the use of particular formsor types of additional offering or other documents in connection with the funds and prescribing requirements in respect of thecalculation of the net asset value of mutual funds.
Paragraph 143(1)39 authorizes the Ontario Commission to make rules requiring or respecting the media, format, preparation, form,content, execution, certification, dissemination and other use, filing and review of all documents required under or governed by theOntario Act, the regulations or the rules and all documents determined by the regulations or rules to be ancillary to the documents,including preliminary prospectuses and prospectuses.
The CSA, in the Concept Proposal, noted that in developing the proposed "Summary Information Prospectus Disclosure System",they considered:
retaining the disclosure documents required by, and the system established by, NP36, but updating the disclosurerequirements;
the recommended four document disclosure system set out in the Stromberg Report;
the SEC profile prospectus system (as it was then proposed); and
a proposal developed by IFIC in 1995 for a profile prospectus to be used in Canada.
The CSA identified and considered the pros and cons of each of the above-noted alternatives. Ultimately, the CSA decided that theproposed Summary System as outlined in the Concept Proposal would "allow mutual funds to provide a short, readable, yetinformative document to investors that will address their needs without detracting from the quality of the disclosure provided".
Following the release of the Concept Proposal, the CSA considered the comments received and continued to work with industryparticipants as described earlier in this Notice. The CSA also reviewed the SEC disclosure rules. The CSA have not seriouslyconsidered any alternative to the proposed disclosure system described in the proposed National Instrument since they released theConcept Proposal.
In proposing the National Instrument, Forms and Companion Policy, the CSA have not relied on any significant unpublished study,report, decision or other written materials.
Anticipated Costs and Benefits
The proposed National Instrument, Forms and Companion Policy promote mutual fund disclosure documents that effectivelycommunicate essential information to investors. The CSA have focused the disclosure items required in a Fund Summary and FundProspectus on information that will help investors make informed investment decisions. The information to be included in a FundSummary and Fund Prospectus will be organized in an efficient, clear, concise and standardized manner, which will increase theeffectiveness of the information. Investors will be able to use Fund Summaries in a more efficient and effective manner to compareone mutual fund to another. The Fund Summary is expected to better equip investors to make informed investment decisions, sincethey will have access to clearer and more relevant information.
The CSA do not believe that the disclosure system outlined in the proposed documents will result in a significant cost increase toindustry participants over time because the proposed National Instrument and the Forms do not require that mutual funds disclosea significant amount of new information or prepare an additional number of disclosure documents than are required presently. Ratherthan increase the disclosure and filing burden, the proposed National Instrument and Forms primarily re-order disclosure items, clarifythe formatting and presentation of information and require new formats for certain information.
The initial expense that will likely be experienced by fund companies in having to prepare new disclosure documents to comply withthe proposed National Instrument and Forms is expected to be offset by future savings such as lower printing and distribution costsfrom a shorter Fund Summary and no longer having to give each investor the financial statements of the funds at the time of trade.
The CSA have imposed no limits on the number of mutual funds that may be consolidated into one Fund Summary. However, theCSA acknowledge that one result of the proposed National Instrument and the Forms is that fund companies may decide that a FundSummary will be more effective as a disclosure document if less mutual funds are covered in it. In particular those fund companieswith in excess of thirty funds in their fund families may decide that one Fund Summary covering all funds would be too unwieldy andwould not meet the stated goals of the disclosure system proposed by the CSA. Those fund companies will experience increasedcosts in producing more than one Fund Summary. Distributors of the mutual funds may experience increased costs in having toensure that sales representatives have the proper Fund Summaries on hand for their clients. The CSA believe these increased costswill be outweighed by the benefits to investors in having more manageable and relevant disclosure documents.
The costs to the industry in having to learn plain language principles in order to write fund disclosure documents in plain languageand to follow presentation standards is unquantifiable, but, in the view of the CSA, is more than offset by the benefits to investorsin receiving better written disclosure documents.
On balance, the CSA are of the view that the benefits to investors, and also for the mutual fund industry, expected by the proposedNational Instrument and Forms will outweigh any costs to industry participants.
Regulations to be Amended or Revoked - Ontario
The implementation of the proposed National Instrument, Forms and Companion Policy will not require the amendment or revocationof any Regulation.
The proposed Companion Policy is related to the proposed National Instrument and Forms.
Interested parties are invited to make written submissions with respect to the proposed National Instrument and Companion Policy.Submissions received by October 30, 1998 will be considered.
Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario SecuritiesCommission, 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
Department of Government Services and Lands, Newfoundland
Registrar of Securities, Government of 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: [email protected]
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, 17th Floor
Montréal, Québec H4Z 1G3
E-mail: [email protected]
A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securitieslegislation 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 Commissionand to the Commission des valeurs mobilieres du Quebec, and also to any of the individuals noted below at their respective e-mailaddresses.
Questions may be referred to any of:Robert Hudson
Senior Legal Counsel
British Columbia Securities Commission
or 1-800-373-6393 (in B.C.)
E-mail: [email protected]
Director, Corporate Finance
British Columbia Securities Commission
or 1-800-373-6393 (in B.C.)
E-mail: [email protected]
Alberta Securities Commission
E-mail: [email protected]
Deputy Director, Legal
Saskatchewan Securities Commission
E-mail: [email protected]
Director, Corporate Finance
The Manitoba Securities Commission
E-mail: [email protected]
Investment Funds Team Manager
Ontario Securities Commission
E-mail: [email protected]
Senior Legal Counsel
Ontario Securities Commission
E-mail: [email protected]
Legal Counsel, Service de la reglementation
Commission des valeurs mobilières du Québec
E-mail: [email protected]
Rescission of National Policy Statement No. 36
NP36 will be replaced by the proposed National Instrument, Forms and the Companion Policy. The text of the proposed rescissionis:
"National Policy Statement No. 36 Mutual Funds: Simplified Prospectus Qualification System is rescinded effective upon the dateproposed National Instrument 81-101 Mutual Fund Prospectus Disclosure comes into force."
Text of Proposed National Instrument, Forms and Companion Policy
The text of the proposed National Instrument, Forms and the Companion Policy follow, together with footnotes that are not part ofthe National Instrument, Forms or the Companion Policy, as applicable, but have been included to provide background andexplanation.
DATED: July 31, 1998.Footnotes
1. "Regulatory Strategies for the Mid-'90s - Recommendations for Regulating Investment Funds in Canada" prepared by Glorianne Stromberg forthe Canadian Securities Administrators, January 1995.
2. The Investment Funds Steering Group in its commentary on the disclosure recommendations contained in the Stromberg Report is supportive ofthe CSA proposals. See "The Stromberg Report: An Industry Perspective" prepared by the Investment Funds Steering Group for the CanadianSecurities Administrators, November 1996 at pages 31-35.
3. Canadian Securities Administrators Notice 81-301 Mutual Fund Prospectus Disclosure System -Concept Proposal - Request for Comment (1997)20 OSCB 559.
4. Supra, note 1 at page 121.
5. "Financial Reporting by Investment Funds", Research Report of The Canadian Institute of Chartered Accountants, August 1997.
6. The SEC released in March 1998, final rules allowing U.S. mutual fund companies to sell mutual funds using a very short fund profile (that containsless information than the CSA proposed Fund Summary), so long as the investor also receives (after the trade) a prospectus (that contains moreinformation than the CSA proposed Fund Summary, but less information than the CSA Fund Prospectus). Through these new rules, the SECcompletely reformed the existing disclosure requirements. The SEC is now moving to re-consider the information provided in a "statement ofadditional information" (that contains certain of the information proposed for the CSA Fund Prospectus, and like the CSA Fund Prospectus, is notdelivered to investors, but must be delivered upon request).
7. Securities legislation requires that prospectuses be delivered to investors or their agents within 2 days of a trade. Securities legislation also givesinvestors the right to withdraw from a purchase within defined time periods (48 hours in Ontario) after a purchase -- presumably following receiptand review of a prospectus.
8. All public documents filed by a mutual fund can be easily accessed through the SEDAR (System for Electronic Document Analysis and Retrieval)website; in particular, Fund Prospectuses will be accessible through this medium.
9. The Securities Act (Ontario) permits a mutual fund to prepare a "long-form" prospectus under Form 15 and a "summary" prospectus to accompanythe long-form prospectus under Form 16. These options will not be possible after the proposed National Instrument comes into force. Virtuallyno typical or conventional mutual fund presently prepares a long form prospectus.
10. Notice of Proposed Rule 41-502 and Companion Policy 41-502 Prospectus Requirements for Mutual Funds was released for comment on June27, 1997 at (1997) 20 OSCB (Supp2)137. Proposed Rule 41-502 will be amended to reflect the release of this Notice and the proposed NationalInstrument, Forms and the Companion Policy.
11. Supra note 5 at page 28.
12. See section 16.3 of Item 16 contained in proposed OSC Form 41-501F1; use of OSC Form 41-501F1 is prescribed by proposed OSC Rule 41-501General Prospectus Requirements, May 2, 1997 (1997) 20 OSCB (Supp).