The Ontario Securities Commission’s Investment Funds Branch released its latest Investment Fund Practitioner on November 8, 2012.   It provides an overview of recent issues relating to investment fund filings with the OSC including, among others, the following guidance:

  • Bulleted placeholders are not appropriate in place of certain material information even in preliminary prospectuses.
  • When there is a one-to-one relationship between a conventional mutual fund and another fund under common management, the investment objectives of the top fund must include disclosure of the bottom fund’s investment objectives.
  • The introduction of a fixed administration fee, with or without an adjustment payment triggers the requirement for security holder approval under NI 81-102.
  • Any graphics, photos or artwork included on the prospectus cover page must be relevant to the fund or the distribution of the fund’s securities and cannot be misleading.  To avoid delays, images should be provided to staff early in their review.
  • Given the upcoming six year anniversary of the implementation of NI 81-107 and possible changes to IRC composition, Staff reminds issuers that notice of changes to the IRC must be provided to the principal regulator along with the report to security holders.
  • Staff remind issuers that changes to indices of certain index funds may be a change to the fundamental investment objectives of the fund that may require security holder approval.

In addition, staff provided guidance on the definition of “investment fund”.   Staff continue to regard an investment fund as an issuer that does not seek to exercise control over, or become involved in the management of, investee companies.  Indicia of control or involvement in management include (i) whether the issuer holds securities representing more than 10% of the outstanding equity or voting securities of the investee company; (ii) any right of the issuer to appoint board or board observer seats on the investee company; (iii) restrictions on the management, or approval or veto rights over decisions made by the management, of the investee company by the issuer; or (iv) any right of the issuer to restrict the transfer of securities by other security holders of the investee company.  According to staff, the presence of one or more of these factors is generally indicative of control.