81-509 Mutual Fund Requirements [Advanced Notice - Lapsed]
October 13, 2004
May 31, 2006
Division A - Definitions and interpretationDefinitions
1 In this instrument:
“Act” means the Securities Act, S.B.C. 2004, c. 43;
“designated” means designated by the commission;
“NI 81-102” means National Instrument 81-102 Mutual Funds;
“rules” means the Securities Rules.
Division B - Requirements for all mutual fundsStandard of care for management of a mutual fund
2 A fund manager must
(a) exercise the powers and discharge the duties related to management of a mutual fund honestly, in good faith and in the best interests of the fund, and
(b) exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.
3 (1) If a mutual fund is required under this instrument or an exemption from this instrument to file a record or send a record to an investor, the mutual fund must prepare the record in plain language.
(2) For the purpose of this section, a record is in plain language if its form, style and language enable an ordinary investor, applying reasonable effort, to understand it.
Division C - Offering exemptionPooled funds
4 (1) Section 18 (1) of the Act does not apply to a person making an offering of a security of a mutual fund if
(a) the mutual fund is not a public mutual fund,
(b) the offering is made to a client of a registered adviser, or an adviser in another province or foreign jurisdiction that is registered under the securities laws of the other province or foreign jurisdiction for the purpose of acting as an adviser, and
(c) the adviser referred to in paragraph (b)
(i) manages the investment portfolio of the fund, and
(ii) has full discretion to trade without requiring the client’s consent to a transaction.
(2) A mutual fund that makes an offering of securities under subsection (1) must file a report in the required form no later than 30 days after the end of the calendar year in which the offering occurs.
(3) A trade of a security of a mutual fund acquired under subsection (1) is an offering unless the securityholder trades it to the mutual fund or under section 64 of the rules [trade related to business combination, reorganization, bid or winding up].
Division D - ProspectusAmendment to prospectus
5 If a significant change occurs in the affairs of a public mutual fund, the public mutual fund must file an amendment to its prospectus that discloses the significant change as soon as practicable.
Delivery of prospectus on request
6 A mutual fund must send a copy of a prospectus filed under the Act as soon as practicable and without charge to a prospective purchaser, or purchaser, who requests it.
Lapse of prospectus
7 If a mutual fund makes an offering under a prospectus, the mutual fund must not trade a security under the offering more than one year and 20 days after the date of the prospectus.
Annual financial statements
Division E - Financial Statements in a Prospectus
8 (1) Subject to subsections (2) and (3), a mutual fund that files a prospectus under the Act must include in the prospectus annual financial statements in the required form for the fund’s 2 most recently completed financial years, or if the mutual fund has not completed 2 financial years, for all of its financial years.
(2) If a mutual fund’s most recently completed financial year ended within 90 before the date of the prospectus referred to in subsection (1), the fund may treat the previous year as the most recently completed financial year under subsection (1).(3) If the mutual fund has not completed its first financial year, the fund must include in the prospectus financial statements for the period from the date of the fund’s formation to a date not more than 90 days before the date of the prospectus.
9 (1) For the purpose of section 8,
(a) the financial statements for the mutual fund’s most recently completed financial year must be audited financial statements, and
(b) the financial statements for a financial year other than the mutual fund’s most recently completed financial year may be unaudited financial statements unless
(i) the financial statements for the financial year have been audited, and
(ii) the auditor of those statements issued a report with respect to the audit.
(2) Despite subsection (1), a statement of portfolio transactions may be unaudited if it states that it presents fairly the required information.Interim financial statements
10 (1) Subject to subsections (2) and (3), a mutual fund that files a prospectus must include in the prospectus comparative financial statements in the required form for the most recent six months.
(2) If a mutual fund’s most recent six month period ended within 90 days before the date of the prospectus referred to in subsection (1), the fund may treat the previous six month period as the most recent six month period under subsection (1).Exemption
(3) Interim financial statements are not required if the results for the six-month period are included in the annual financial statements filed under section 8.
11 Sections 8 and 10 do not apply to a mutual fund that is subject to National Instrument 81-101 Mutual Fund Prospectus Disclosure if it incorporates by reference in the prospectus the financial statements required to be incorporated in a prospectus under that Instrument and the financial statements are in the required form.
Division F - Periodic Disclosure
12 In this Division,“form of proxy” means a record containing the information required under section 25 that becomes a proxy when it is completed and signed by or on behalf of a securityholder.
Approval of financial statements
13 Financial statements required under this Division must be approved in accordance with NI 81-102.
Annual audited financial statements
14 (1) A public mutual fund must file comparative annual audited financial statements in the required form.
(2) Despite subsection (1), a public mutual fund is not required to include a statement of portfolio transactions in its annual financial statements if(a) a copy of the statement is filed with the financial statements, and
(b) it contains an auditor’s report on the statement or states that the statement presents fairly the required information.
Filing deadline for annual audited financial statements
15 The annual financial statements under section 14 must be filed within 140 days after the end of the financial year.
Interim financial statements
16 (1) Except as provided in subsection (2), a public mutual fund must file comparative financial statements for the first six months of its financial year in the required form.
(2) A mutual fund that has not completed its first financial year is not required to file financial statements for a period that is shorter than six months.Filing deadline for interim financial statements
17 The financial statements under section 16 must be filed within 60 days after the end of the interim period.
Delivery of financial statements to securityholders
18 (1) A public mutual fund must send a copy of its annual financial statements and interim financial statements to all of its securityholders unless the mutual fund annually sends to all of its securityholders
(a) a notice stating that securityholders will not receive annual or interim financial statements of the mutual fund after the date of the notice unless the securityholder requests the statements,
(b) a form that the securityholders can use to request the statements, and
(c) information about where the securityholders are to send the request form.
(2) A public mutual fund that relies on subsection (1) must, within three business days of the later of(a) filing the financial statements, and
(b) receiving a request under subsection (1) from a securityholder,
send the annual or interim financial statements to the securityholder who made the request.Change of auditor
19 (1) If a public mutual fund terminates an auditor’s appointment or the auditor resigns or declines to stand for re-appointment, the mutual fund must, as soon as practicable,
(a) file and deliver to its former auditor a report describing any reasons for the event known to the fund, including any reason related to the content, presentation, audit or review of the mutual fund’s financial statements,
(b) deliver the report in paragraph (a) to the successor auditor as soon as one is appointed, and
(c) issue and file a news release as soon as practicable disclosing that the auditor’s appointment was terminated or the auditor has resigned or declined to stand for re-appointment.
(2) A public mutual fund must issue and file a news release disclosing the appointment of the successor auditor as soon as practicable after the appointment is made.(a) required by the mutual fund’s incorporating or governing legislation, or
(3) If the auditor or successor auditor disagrees with any important information in the mutual fund’s report or believes that relevant information relating to the change of auditor was not disclosed, the auditor must, as soon as practicable, notify the commission in writing of the disagreement and the basis for it or of the undisclosed information.
(4) This section does not apply to a change of auditor
(b) resulting solely from a takeover bid, business combination or similar reorganization affecting the mutual fund or the auditor.
Change in year end - notice requirement
20 (1) If a public mutual fund proposes to changes its financial year end, it must file a notice of the proposed change.
(2) The mutual fund must file the notice under subsection (1) by the earlier of(a) the new date elected for the financial year end, and
(b) the 360th day after the end of the most recent financial year for which financial statements were required to be filed under section 14.
Change in year end - transition year
21 (1) A transition year must not exceed 15 months and the period under section 16 (1) in a transition financial year must not exceed seven months.
(2) Despite section 16, a public mutual fund is not required to file financial statements for a period in a transition year that ends within 1 month(a) after the last day of its former financial year, or
(b) before the first day of its new financial year.
(3) In this section, “transition year” means the financial year of a mutual fund in which the mutual fund changes its financial year end.Sending of form of proxy and information circular
22 (1) A public mutual fund must, when giving notice of a meeting to its securityholders, send to each registered securityholder who is entitled to vote at the meeting a form of proxy with respect to the meeting.
(2) A person that solicits a proxy from a registered securityholder of a public mutual fund must(a) if a proxy is solicited by or on behalf of the mutual fund, send an information circular in the required form with the notice of meeting to the registered securityholder, or
(b) if the proxy is solicited by or on behalf of a person other than the mutual fund, at the same time as or before the solicitation, send an information circular in the required form to the securityholder.
(3) For the purpose of this section, a person is not soliciting a proxy if it(a) performs an administrative act or professional service on behalf of a person soliciting a proxy,
(b) acts as an intermediary,
(c) is a securityholder and makes a public announcement of how it intends to vote and the reasons why it will vote that way, or
(d) communicates with a securityholder for the purpose of obtaining the number of securities required for a shareholder proposal.
Exemptions from sending information circulars
23 (1) Section 22 (2) (b) does not apply to a solicitation if proxies are solicited from no more than 15 securityholders with respect to the meeting.
(2) For the purpose of subsection (1), two or more persons who are joint registered owners of a security are considered to be one securityholder.Filing of information circulars and proxy-related material
24 A person that is required to send an information circular or form of proxy under section 22 must, as soon as practicable after sending the circular or form, file a copy of the circular or form and all other material required to be sent by the person in connection with the meeting.
Content of form of proxy
25 (1) A form of proxy under section 22 must permit the securityholder
(a) to specify that the securities registered in its name will be voted for or against, or voted for or withheld from voting on, each matter identified in the form of proxy, the notice of meeting or the information circular, and
(b) if the form of proxy names a person to act as nominee, to name another person as the securityholder’s nominee.
(2) An information circular under section 22 or the related form of proxy must(a) state that the securityholder may appoint someone other than the person named in the form of proxy to be the securityholder’s nominee,
(b) explain how the securityholder may exercise the right in paragraph (a), and
(c) state that the proxy will vote in accordance with the securityholder’s instructions.
(3) A nominee must not vote the securities represented by a proxy on a matter unless(a) the securityholder has specified on the form of proxy how the securities are to be voted, or
(b) the securityholder has not specified how the securities are to be voted and the form of proxy or the information circular discloses how the securities proxy will be voted if the securityholder fails to specify how the securities are to be voted.
(4) A form of proxy under section 22 may confer discretionary authority on a nominee to vote securities with respect to a matter if the information circular or form discloses that the form confers discretionary authority.(a) the nominee is the person that solicited the proxy, or represents or was appointed by that person,
(5) If a securityholder has conferred discretionary authority on a nominee under subsection (4), the nominee must not vote the securities with respect to a matter if
(b) the matter was not described in the form of proxy or the information circular, and
(c) the nominee or the person that solicited the proxy knew or reasonably should have known that the matter would come before the meeting.
(6) A form of proxy under section 22 must not confer authority to vote(a) for the election of any person as a director of a public mutual fund unless a bona fide proposed nominee for that election is named in the information circular, or
(b) at any meeting other than the meeting specified in the notice of meeting or any adjournment of that meeting.
Exemption based on periodic disclosure requirements in other province
26 Sections 14 to 22, 24 and 25 do not apply to a public mutual fund that is a reporting issuer under the securities laws of another province if it
(a) complies with the requirements in the other province designated for the purpose of this section,
(b) files with the commission the records it is required to file under the designated requirements when it files them in the other province, and
(c) sends a record to a securityholder in British Columbia at the same time and in the same manner as it is required to send that record to a securityholder in the other province.
Division G - Timely Disclosure
27 A public mutual fund must issue and file a new release disclosing a significant change under section 24 of the Act as soon as practicable.
Confidential significant change report
28 A public mutual fund is exempt from section 24 of the Act [disclosure of significant change by public mutual fund] if
(a) the mutual fund files, as soon as practicable, a confidential significant change report describing
(i) the significant change the mutual fund would have disclosed in its news release had it made disclosure under section 24 of the Act, and
(ii) the reasons why there should not be a press release, and
(b) in the fund manager’s opinion
(i) the disclosure required by section 24 of the Act would be unduly detrimental to its interests, or
(ii) the significant change consists of a decision to implement a change made by senior management of the mutual fund who believe that confirmation of the decision by the directors is probable, and senior management has no reason to believe that persons with knowledge of the significant change have made use of that knowledge in trading securities of the mutual fund.
Filing records sent to securityholders or other agencies
29 (1) If a public mutual fund
(a) sends a record to a securityholder, or
(b) provides a record to a marketplace, a regulatory organization or another regulator,
(a) the mutual fund sends the record to the securityholder, and
and the record contains significant information, the mutual fund must file the record unless the significant information contained in the record has already been filed.(2) A public mutual fund must file a record under subsection (1) at the earlier of the time
(b) the mutual fund provides the record to the marketplace, regulatory organization or other regulator.
Division H - Self dealing by public mutual funds
30 (1) In this section:
“investment”means a purchase of a security, or a loan or advance to a person, but does not include a loan or advance that(a) is made by a mutual fund, its fund manager or its distributor, and
(b) is merely ancillary to the main business of the mutual fund, its fund manager or its distributor;
“responsible person” means(a) a fund manager,
(b) an individual who is a partner, director or officer of the fund manager, or
(c) an associate or affiliate of the fund manager.
(2) A responsible person must not knowingly cause a public mutual fund to(a) make an investment in an issuer in which a responsible person is a partner, director or officer unless that fact is disclosed to the mutual fund’s securityholders before the investment is made,
(b) trade a security of an issuer from or to the account of a responsible person, or
(c) make a loan to a responsible person or to an officer or director of the mutual fund, its distributor or an associate of any of them.
(3) A mutual fund or a responsible person must not knowingly enter into a contract or other arrangement that results in the mutual fund being directly or indirectly liable or contingently liable in respect of a transaction referred to in this section.Exemption for responsible persons
31 Section 30 (2) (b) does not apply to a trade of a security of an issuer from or to the account of a responsible person who
(a) does not participate in the making of investment decisions on behalf of the mutual fund, or
(b) does not have knowledge of investment decisions made on behalf of the mutual fund or of advice given to the mutual fund about those decisions before implementation of the investment decisions.
Exemption for mortgages and debt securities
32 (1) Section 30 (2) (b) does not apply to a trade of a mortgage if the terms of the purchase or sale are reasonable and in the best interests of the mutual fund.
(2) Section 30 (2) (b) does not apply to a trade of a security referred to in section 67 of the rules [trade in exempt security] if the terms of the trade are reasonable and in the best interests of the mutual fund.
(3) Section 30 (2) (b) does not apply to a trade of non-convertible debt of a corporate issuer that is rated by a rating agency designated for the purpose of this section, if the terms of the trade are reasonable and in the best interests of the mutual fund.
Division I - Public Mutual Fund Sales PracticesPayments to dealers
33 (1) In this section, “agent” means a partner, director, officer, representative, or employee of the dealer.
(2) The fund manager for a public mutual fund must not enter into an agreement or arrangement with a dealer that compensates or benefits the dealer, or an agent of the dealer, in a manner that would lead a reasonable person to question if the dealer or the agent could provide objective advice to a client of the dealer or make an objective determination of the suitability for the client of a trade of a security of the public mutual fund.Exemption for compliance with NI 81-105
34 Section 33 does not apply to a fund manager for a public mutual fund that is a reporting issuer under the securities laws of another province if the fund manager complies with the requirements designated for the purpose of this section.
35 A fund manager for a public mutual fund must not require a person to purchase
(a) a security of the mutual fund as a condition to providing a product or service to the person, or
(b) a product or service as a condition to selling the person a security of the mutual fund.
Meeting information and voting instructions
Division J - Custodians
36 (1) In this section, “custodian” means a custodian of securities issued by a mutual fund and held for the benefit of plan holders under a custodial agreement or other arrangement.
(2) If a custodian or its nominee(a) is a registered securityholder of an issuer but does not beneficially own the securities,
(b) knows the name and address of the beneficial securityholder, and
(c) receives one of the following documents:
(i) a notice of a meeting of an issuer’s securityholders;
(ii) an information circular;
(iii) a bid circular, a directors circular or a director’s or officer’s circular under British Columbia Instrument 62-502 Takeover Bids and Issuer Bids,
(a) vote the security, or give a proxy requiring a nominee to vote the security, in accordance with instructions from the securityholder, or
the custodian must send the document, as soon as practicable, to the beneficial securityholder.(3) A public issuer or public mutual fund must send, at its own expense, to the custodian the requested number of copies of the documents referred to in subsection (2) on request by the custodian.
(4) If a securityholder requests, the custodian must
(b) give the securityholder, or its nominee, a proxy enabling one of them to vote the security.
37 Section 36 (2) does not apply if the securityholder has not agreed to pay the reasonable costs of sending the material.