81-509 - Mutual Fund Requirements [Proposed BCI - Lapsed]

Division A - Requirements for all mutual funds

1 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.

Plain language

2 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.

3 (1) Section 18(1) of the Act does not apply to an offering of a security of a mutual fund that is not a public mutual fund made to a client of a registered adviser, or an entity in another province or a foreign jurisdiction with status equivalent to a registered adviser, if the adviser

(a) manages the investment portfolio of the fund, and

(b) has full discretion to trade without requiring the client’s express consent to any transaction.

4 Prior to filing a prospectus under the Act, a mutual fund must file a draft of the prospectus.

Amendment 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 purchaser under the offering who requests it.

Lapse date

7 (1) In this section, “lapse date” means the date that is 12 months after the date of a prospectus filed under the Act.

(2) A public mutual fund must not trade a security under a prospectus after the lapse date unless:

(a) trading continues for no more than 20 days, and

(b) a new prospectus in the required form is filed on or before the 10th day after the lapse date.

8 (1) 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 ended more than 90 days before the date of the prospectus.

(2) Despite subsection (1), if the mutual fund has not completed one 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.

Audit requirement

9 (1) The financial statements for the most recent financial year or period required under section 8 must be audited.

(2) Financial statements included in a prospectus under section 8, other than those for the most recent financial year or period, may be unaudited, only if the auditor has not issued an auditor’s report on the financial statements.

(3) Despite subsection (1), a statement of portfolio transactions does not need to be audited if it contains a statement that it presents fairly the required information.

Interim financial statements

10 (1) A mutual fund that files a prospectus under the Act must include in the prospectus comparative interim financial statements in the required form for the most recent six months if the six month period ended more than 60 days before the date of the prospectus.

(2) Despite subsection (1), the interim financial statements may be omitted if the results for the six-month period are included in the annual financial statements filed under section 8.

More recent financial statements

11 Despite subsections 8(1) and 10(1), if financial statements for a more recent financial year or six-month period are completed and approved, the issuer must include in the prospectus the more recent financial statements.

Exemption

12 Section 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 that instrument and the financial statements are in the required form.

13 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

14 Financial statements required under this division must be approved in accordance with National Instrument 81-102 Mutual Funds.

Annual audited financial statements

15 (1) A public mutual fund must file comparative annual audited financial statements in the required form.

(2) Despite subsection (1), a statement of portfolio transactions may be omitted from the 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 a statement that it presents fairly the required information.

Filing deadline for annual audited financial statements

16 The annual financial statements must be filed by the 140th day after the end of its most recent financial year.

Interim financial statements

17 (1) A public mutual fund must file comparative interim financial statements in the required form for the first six months of its current financial year.

(2) Despite subsection (1), a mutual fund that has not completed its first financial year is not required to file interim financial statements for an interim period that is shorter than six months.

Filing deadline for interim financial statements

18 The interim financial statements must be filed by the 60th day after the end of the interim period.

Delivery of financial statements to securityholders

19 A public mutual fund must send a copy of its annual financial statements, interim financial statements and any statement of portfolio transactions omitted from financial statements to its securityholders unless the fund manager

(a) annually sends to its securityholders

(i) a notice informing them they will not receive annual or interim financial statements of the mutual fund after the date of the notice, unless they request them,

(ii) a form that they can use to request the annual or interim financial statements, and

(iii) information about where they should send their request forms, and

(b) within three business days of the later of

(i) filing the financial statements, or

(ii) receiving a request from a securityholder,  sends the annual or interim financial statements to the securityholders who requested them.

Change of auditor

20 (1) If a public mutual fund changes auditors, it must, as soon as practicable following the change,

(a) prepare, file and deliver to its former and successor auditors a report describing the reasons for the change, including any reason related to the content, presentation, audit or review of the mutual fund’s financial statements, and

(b) issue and file a news release disclosing the change of auditor.

(2) If a former or successor auditor believes the mutual fund’s report fails to fairly and fully state the reasons for the change, the auditor must provide to the commission as soon as practicable a letter disclosing the deficiency.

(3) This section does not apply to a change of auditor required by the mutual fund’s incorporating or governing legislation or resulting solely from a takeover bid or equivalent transaction in another jurisdiction, business combination or similar reorganization affecting the mutual fund or the auditor.

Change in year end

21 (1) In this section, “transition year” has the same meaning as under the rules.

(2) If a public mutual fund proposes to changes its financial year end, it must file a notice of the change.

(3) 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 15.

(4) A transition year must not exceed 15 months and the first interim period in a transition year must not exceed seven months.

(5) Despite section 17, a public mutual fund is not required to file interim financial statements for any 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.

Sending of proxies and information circulars

22 (1) The fund manager 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 for use at the meeting.

(2) A person that solicits proxies from registered securityholders of a public mutual fund must

(a) if proxies are solicited by or on behalf of management of the mutual fund, send an information circular in the required form with the notice of meeting to each registered securityholder whose proxy is solicited, or

(b) in any other case, at the same time as or before the solicitation, send an information circular in the required form to each registered securityholder whose proxy is solicited.

(3) For the purpose of this section, a person does not solicit proxies if it

(a) sends a form of proxy to a securityholder in response to an unsolicited request made by or on behalf of a securityholder,

(b) performs administrative acts or professional services on behalf of a person soliciting a proxy,

(c) acts as an intermediary,

(d) is a securityholder and makes a public announcement of how it intends to vote and the reasons why, or

(e) communicates with securityholders 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.

(2) For the purpose of subsection (1), two or more persons who are joint registered owners of securities 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, file a copy of the information circular, form of proxy and all other material required to be sent by the person in connection with the meeting to which the information circular or form of proxy relates.

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 designate 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 designated in the form of proxy to represent the securityholder at the meeting,

(b) explain how the securityholder may exercise the right in paragraph (a), and

(c) state that the securities represented by the proxy will be voted in accordance with the securityholder’s instructions.

(3) A form of proxy under section 22 may confer discretionary authority only if the information circular or form of proxy discloses that the proxy confers discretionary authority, and

(a) in the case of any matter, the form of proxy or the information circular discloses how the securities represented by the proxy will be voted if the securityholder fails to specify a choice, and

(b) in the case of amendments, variations or other matters that may come before the meeting, the person soliciting proxies could not reasonably have known that the amendment, variation or other matter would come before the meeting.

(4) 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 thatelection 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 corporate law requirements for proxies

26 A public mutual fund is not required to comply with sections 22, 24 and 25 if the requirements of the laws of the jurisdiction in which it carries on business, or is incorporated, organized or continued, are substantially similar to sections 22, 24 and 25, and the mutual fund is subject to, and complies with, those requirements.

Exemption based on periodic disclosure requirements in other province

27 Sections 15 to 22, 24 and 25 do not apply to a public mutual fund that is a reporting issuer in another province if it

(a) is subject to, and complies with, the designated requirements in the other province,

(b) files the records it is required to file under those requirements when it files them in the other province, and

(c) sends records to securityholders in British Columbia at the same time and in the same manner as it is required in the other province.

28 The prescribed time for a public mutual fund to issue and file a new release disclosing a significant change under section 24 of the Act is as soon as practicable.

Confidential significant change report

29 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

30 (1) A public mutual fund must file a record containing significant information about the mutual fund that it

(a) sends to its securityholders, or

(b) files with a regulatory organization or a regulator, if the record contains significant information that is not already filed with the commission.

(2) A public mutual fund must file a record under subsection (1) on the earlier of

(a) when the mutual fund sends the record to its securityholders, or

(b) when the mutual fund files the record with a regulatory organization or a regulator.

31 (1) In this section,

“investment”means a purchase of a security, the creation of a derivative traded on an exchange, 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; and

“responsible person” means

(a) a fund manager,

(b) every individual who is a partner, director or officer of the fund manager, and

(c) every 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 any issuer in which a responsible person is a partner, officer, or director unless that fact is disclosed to the mutual fund securityholders before the purchase,

(b) trade the securities of any 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 that is prohibited by this section.

Exemption for responsible persons

32 Section 31(2)(b) does not apply to a trade of a security of any issuer from or to the account of a responsible person who does not

(a) participate in the making of investment decisions on behalf of the mutual fund, or

(b) have access to investments decision made on behalf of the mutual fund or to advice given to the mutual fund about those decisions before implementation of the investment decisions.

Exemption for mortgages and debt securities

33 (1) Section 31(2)(b) does not apply to a trade of a mortgage if the terms of the purchase or sale are reasonable, fair and in the best interests of the mutual fund.

(2) Section 31(2)(b) does not apply to a trade of a security referred to in section 66 of the rules [exempt securities] if the terms of the trade are reasonable, fair and in the best interests of the mutual fund.

(3) Section 31(2)(b) does not apply to a trade of non-convertible debt of a corporate issuer that a designated rating agency has rated, if the terms of the trade are reasonable, fair and in the best interests of the mutual fund.

34 (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 its agents in a manner that would lead a reasonable person to question if the dealer or its agents could provide objective advice to a client or make an objective determination of the suitability for a client of a trade of a security of the public mutual fund.

Exemption

35 Section 34 does not apply to the fund manager for a public mutual fund if it is subject to, and complies with, the designated requirements in another province.

Tied selling

36 The fund manager for a public mutual fund must not require a person to purchase

(a) a security of a mutual fund as a condition to providing a product or service, or

(b) a product or service as a condition to selling a security of a mutual fund.