Use of Short Form Prospectus

This article was originally published in the Investment Funds Practitioner in May 2011.

We have noted a number of issuers who make one or more subsequent offerings within a year of filing a long form prospectus in connection with their initial public offering. We remind filers that a new reporting issuer is not qualified to use a short form prospectus unless it can rely on the exemption in section 2.7 of NI 44-101 Short Form Prospectus Distributions. One criterion of using the short form is that a new reporting issuer must have a final prospectus that includes “comparative annual financial statements for its most recently completed financial year” (section 2.7(1)(b)).

We remind filers that the short form prospectus regime incorporates by reference a reporting issuer's continuous disclosure record; accordingly, a fund must have an established continuous disclosure record before it can file a short form prospectus. If a new fund has not yet completed a financial year, staff’s view is that the fund’s continuous disclosure record is not comprehensive enough because it does not  have comparative annual financial statements1 and, therefore, it cannot rely on the new reporting issuer exemption to use the short form prospectus.

One filer thought that it could rely on the new reporting issuer exemption because its final prospectus included an audited opening balance sheet and it intended to include unaudited interim financial statements in its short form prospectus. Staff were of the view that the combination of these documents could not replace audited “annual financial statements” because: (i) an opening balance sheet, although audited, does not reflect the results of a completed financial year since there have not yet been any operations of the fund; and (ii) while interim financial statements capture the recent operations of the fund, they are not accompanied by an auditor’s report. In this case, staff asked the filer to use the long form prospectus.

1In the case of a fund with a final prospectus that incorporates audited annual financial statements for the first completed financial year, staff have not taken issue when that fund relies on the new reporting issuer exemption, even though the financial statements are not comparative. While the inclusion of comparative figures in the financial statements is a requirement, they cannot be provided if the fund has only been in operation for one year.