CANADA: OSC Publishes Investment Funds Practitioner

Tuesday November 13 2012

The Investment Funds Branch of the Ontario Securities Commission (OSC) has published the November edition of the Investment Funds Practitioner.

Of particular interest is the information provided on the investment objectives for a fund of funds. The OSC have noted that where there is a one-to-one relationship between conventional mutual funds under common management, staff do not consider it sufficient for the investment objectives of the top fund to only state that the top fund`s investment objectives are to invest in a named bottom fund. Disclosure of the bottom fund`s investment objectives in the top fund`s investment objectives is appropriate in view of the fund-of-fund structure which provides direct exposure to the portfolio of securities held by the bottom fund and is also consistent with disclosure rules. Issuers are reminded to provide this disclosure for conventional funds where there is a one-to-one relationship between top and bottom funds.

Additionally, the OSC have provided the definition of an “Investment Fund” as set out in the Securities Act (Ontario) following recent inquiries concerning whether certain issuers meet the definition of investment fund.

In determining whether an issuer proposing to be an investment fund exercises control over, or is involved in the management of, an investee company, staff will generally consider indicators, including: (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. The presence of one or more of these factors is generally indicative of control.

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