Securities Law

BCN 2004/47 - Income Trusts and Other Indirect Offerings [NP - Lapsed]

Published Date: 2004-12-03
Rescinded Date: 2012-07-18
Related Document(s):

The Commission is adopting National Policy 41-201 Income Trusts and Other Indirect Offerings effective December 3, 2004. The CSA notice that follows announces the adoption of the policy, and attaches an appendix of the comments we received during the comment period and the CSA staff’s response to those comments. The CSA plans to revisit the policy in approximately two years.


You may refer questions to:

Pamela Egger
Senior Legal Counsel
Legal Services, Corporate Finance
British Columbia Securities Commission
(604) 899-6867
(800) 373-6393 (in B.C. and Alberta)

December 3, 2004

Douglas M. Hyndman

Ref:      National Policy 41-201 Income Trusts and Other Indirect Offerings

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at in the Commission Documents database or the Historical Documents database.


Notice of National Policy 41-201

Income Trusts and Other Indirect Offerings


December 3, 2004. 

Notice of Policy


The Ontario Securities Commission (the Commission), together with other members of the Canadian Securities Administrators (the CSA or we), has, under section 143.8 of the Securities Act (Ontario) (the Act), adopted National Policy 41-201 Income Trusts and Other Indirect Offerings (the Policy).


The Policy will be adopted on December 3, 2004.




On October 24, 2003, the CSA published a proposed version of the Policy for comment (the Draft Policy).   During the comment period, which ended on December 23, 2003, we received 21 comment letters.   We received 3 comment letters after the expiry of the comment period.


Substance and purpose of the Policy


The Policy provides guidance and clarification to market participants about income trusts and other indirect offering structures.   The CSA wants to ensure that everyone investing in income trust offerings has access to sufficient information to make an informed investment decision.   We believe that it is beneficial to express our view about how the existing regulatory framework applies to non-corporate issuers (such as income trusts) and to indirect offerings, in order to minimize inconsistent interpretations and better ensure that the intent of the regulatory requirements is preserved.


We note that legislative changes in Alberta relating to the concepts of insider and control, as well as unitholder liability, clarify the framework for income trusts in Alberta.   Similar legislation is being considered in Ontario and British Columbia. 


Summary of changes to the Draft Policy 


After considering the comments received, we have made changes to the Draft Policy.   As these changes are not material, we are not republishing the Policy for a further comment period.   The CSA plans to revisit the Policy in approximately two years.


This section describes changes made to the Draft Policy.   We have considered the comments received and thank all the commenters.   The names of the commenters and a summary of their comments, together with our responses, are contained in Appendices A and B to this notice.  We have attached a blacklined version of the Policy (blacklined against the Draft Policy) as Appendix C to this notice.




We have revised section 1.1 of the Policy to clarify the reasons for drafting a policy rather than a rule.


Definition of income trust


We have deleted the reference to “substantially all” in section 1.2 to reflect situations where a unitholder is entitled to less than substantially all of the net cash flows generated by an operating entity.


We have added language to clarify that the Policy is not intended to apply to issuers of asset-backed securities or capital trust securities.


Description of direct and indirect offerings


We have made several drafting changes to make the distinction between direct and indirect offerings clearer.


Risk factors


We have added a section relating to risk factors, in which we remind issuers to disclose relevant risk factors in the prospectus.


We have added a recommendation about the risk factor relating to the potential inapplicability of insolvency and restructuring legislation in the trust context.


Distributable cash


We have replaced the term “non-taxable” with “tax-deferred”.


We have determined that the more specific breakdown between “return on” and “return of” capital is more appropriate in the context of continuous disclosure documents, such as MD&A.   In the context of the initial offering document, we recommend that issuers provide that breakdown, if a forecast has been prepared.   If no forecast has been prepared, we recommend that issuers provide cover page disclosure which explains to investors that the distribution will contain a breakdown of both a “return on” and “return of” capital.

Non-GAAP measures


Since publication of the Draft Policy on October 24, 2003, the CSA published CSA Staff Notice 52-306 - Non-GAAP Financial Measures.   We have revised section 2.5 of the Policy accordingly.


Material debt


We have revised the Policy to ensure that all material debt, regardless of term length, is captured.   We also clarify that only material credit agreements need to be filed.


We have revised the Policy to capture debt incurred by an entity other than the operating entity.


Stability ratings


We have removed the recommendation for issuers to include disclosure about the absence of a stability rating, and the reasons for not obtaining one.


Determination of unit offering price


We have clarified the Policy to explain that the valuation section applies in the context of an initial public offering rather than in the context of subsequent offerings and acquisitions.


Continuous disclosure


As a result of recent amendments to OSC Rule 61-501 and Autorité des marchés financiers’ (AMF) regulation entitled Policy Statement Q-27, we have removed the reference to OSC Rule 61-501 and AMF’s regulation entitled Policy Statement Q-27.


Management’s Discussion and Analysis (MD&A)


We have added a section to the Policy relating to MD&A, specifically about our recommendations relating to MD&A disclosure about risks and uncertainties, and about distributed cash.


Comparative financial information


Section 3.2 of the Policy was revised to take into account the issuance on March 19, 2004 by the Canadian Institute of Chartered Accountants’ Emerging Issues Committee (EIC) of EIC Abstract 145 - Basis of Accounting for Assets Acquired Upon the Formation of an Income Trust, applicable for transactions initiated on or after January 1, 2004.

Prospectus liability


We have clarified that we are not amending the legislative definition of promoter through the Policy.   We have also elaborated upon concerns relating to the use of contractual representations and warranties in scenarios where active vendors that would be akin to selling security holders in a direct offering have not signed a prospectus certificate.


Sales and marketing materials


We have removed the exclusion of “return of capital” from the definition of “yield”.


Corporate Governance


We have added a section entitled “Corporate governance” to deal specifically with governance issues in the income trust context.   In particular, we have added guidance about the investor confidence initiatives, and about broader corporate law concerns.




Please refer your questions about the Policy to any of:


Ilana Singer
Ontario Securities Commission
Telephone:   (416) 593-2388


Iva Vranic
Ontario Securities Commission
Telephone:   (416) 593-8115


Doug Welsh
Ontario Securities Commission
Telephone:   (416) 593-8068

Marsha Manolescu
Alberta Securities Commission
Telephone:   (403) 297-2091

Agnes Lau
Alberta Securities Commission
Telephone:   (403) 297-8049

Pamela Egger
British Columbia Securities Commission
Telephone:   (604) 899-6867

Mike Moretto
British Columbia Securities Commission
Telephone:   (604) 899-6767

Céline Morin
Autorité des marchés financiers
Telephone:   (514) 940-2199 ext. 4395

Élyse Turgeon
Autorité des marchés financiers
Telephone:   (514) 940-2199 ext. 2538

Ian McIntosh
Saskatchewan Financial Services Commission
Telephone: (306) 787-5867

Wayne Bridgeman
The Manitoba Securities Commission
Telephone: (204) 945-4905

Frank Mader
Nova Scotia Securities Commission
Telephone:   (902) 424-5343