17.5.5 Simplified Prospectus

17.5.5 Simplified Prospectus

The Simplified Prospectus

In addition to the Fund Facts document, the simplified prospectus of a mutual fund must be filed and mailed or otherwise delivered to mutual fund investors upon request.

A mutual fund prospectus is typically more concise and user-friendly than a conventional prospectus for a new issue of common shares. Despite its simplified format, the issuer must comply with the same legal requirements and deadlines as under the full prospectus system, ensuring that the buyer is granted the same rights and privileges.

Filing and Updating Requirements

• The simplified prospectus must be filed annually with the securities commission. However, it does not need to be updated every year unless there are changes in the mutual fund’s affairs.
• Like the Fund Facts document, it should be written in plain language and presented in an easily comprehensible format.
• For subsequent acquisitions of the same fund, it is not necessary to provide the Fund Facts document or simplified prospectus again unless it has been changed or renewed.

Structure of the Simplified Prospectus

The simplified prospectus consists of two main sections:

• Part A: Contains introductory information about mutual funds in general and specifics regarding funds managed by the mutual fund.
• Part B: Provides detailed information about the specific mutual fund.

The simplified prospectus can cover multiple mutual funds if they belong to the same family, managed by the same entities, and operated similarly. Part A must be substantially similar for each prospectus.

Required Information in the Simplified Prospectus

The simplified prospectus must include the following information:

• Introductory statement delineating the purpose of the prospectus and other available information documents
• Issuer’s name and basic information, including a description of the issuer’s business
• Risk factors and description of the offered securities
• Method for setting the price of securities being sold or redeemed, and disclosure of any charges
• Distribution method
• Statements of responsibility for management, distribution, and portfolio management
• Fees paid to dealers
• Management fees and other expenses, including the annual Management Expense Ratio (MER) for the past five years
• Fund’s investment objectives and practice guidelines
• Details on dividends or other distributions by the issuer
• General income tax consequences for individual investors
• Disclosure of any relevant legal proceedings
• Identity of auditors, transfer agent, and registrar
• Purchaser’s statutory rights
• Summary of fees, charges, and expenses payable by the security holder
• Amendment requirement in cases of significant changes, aligning with the Fund Facts document amendments

Funds investing directly in real property are prohibited from using the simplified prospectus system under National Instrument 81-101 (NI 81-101).

Financial Statements

Investors must be provided with financial statements upon request.

• Annual Audited Financial Statements: These must be submitted to the securities commission in the jurisdiction where the fund is registered by the commission’s specified deadline and made available to new investors.
• Interim Unaudited Financial Statements: Typically required at six months following the fund’s fiscal year-end, these must be reported to the securities commission within the stipulated timeframe and be accessible to new investors.

The Annual Information Form (AIF)

The Annual Information Form (AIF) must be delivered to investors on request and shares several features with the simplified prospectus but includes additional details such as:

• Significant holdings in other issuers
• The tax status of the issuer
• Information on directors, officers, and trustees of the fund, including their indebtedness and remuneration
• Details on associated persons, principal security holders, and management’s interest in material transactions
• Particulars of any material contracts by the issuer

Frequently Asked Questions (FAQs)

What is a simplified prospectus?

A simplified prospectus is a shorter, easier-to-understand version of a full prospectus, used mainly for mutual funds. It provides essential information about the mutual fund’s objectives, management, and fees, ensuring transparency for investors.

How often must the simplified prospectus be updated?

It must be filed annually but only needs to be updated if there are substantial changes in the fund’s affairs.

What should be included in the simplified prospectus?

It must include general information about the issuer, risk factors, details on the securities offered, management details, fees, investment objectives, income tax consequences, and the purchaser’s rights, among others.

Can a simplified prospectus cover multiple mutual funds?

Yes, provided that Part A of each prospectus is similar and the funds are part of the same family, administered by the same entities, and operated similarly.

What additional document must be provided to investors upon request?

The Annual Information Form (AIF) must also be provided upon request, offering more comprehensive information related to the issuer and its management structures.

Key Takeaways

1. Documentation: The simplified prospectus, along with the Fund Facts document, is crucial for investor information and must be delivered upon request.
2. Annual Filing: Although filed annually with the securities commission, updates are required only with significant changes.
3. Structure and Content: Contains two key sections—one with general information about mutual funds and another with specifics about the individual fund.
4. Financial Reporting: Annual audited and interim unaudited financial statements must be provided to the securities commission and new investors.
5. AIF Requirements: The Annual Information Form matches the simplified prospectus in many areas but includes additional disclosure on key management and principal holders.

More about mutual funds and securities regulations can be found in ensuing sections of the Canadian Securities Course.

This information is intended for educational purposes and should be validated with current legal and regulatory standards.