Commission staff today released their views on the
regulatory issues surrounding the conversion of closed-end funds
into mutual funds. Specifically, OSC staff identified a number of
According to OSC staff, the conversion process must be
transparent to investors. Closed-end funds with a built-in
conversion feature should make disclosure regarding the conversion
prominent in the fund's initial prospectus. Closed-end funds
without a built-in conversion feature should include disclosure
regarding the possible conversion and the contemplated process in
the initial prospectus. If the conversion is not contemplated at
the time of the initial prospectus, OSC staff expect that the
decision to convert will trigger the material change reporting
requirements. Investors should be provided with sufficient written
notice (60 days is suggested in instances where securityholder
approval is not sought) before the conversion of the fund. Further,
OSC staff expect that investors will be provided with a redemption
right prior to the typical suspension of redemptions.
Post-conversion compliance with NI 81-102
Closed-end funds with a built-in conversion feature are expected
to comply with NI 81-102Mutual
Funds from inception (or seek exemptive relief at
the time of filing the initial prospectus), while those that
contemplate conversion after the fact are expected to consider if
any modifications are needed to the features or investment
strategies of the fund to ensure compliance with NI 81-102 upon
conversion. Where fundamental changes to such things as the
fund's investment objectives or strategies are anticipated,
securityholders of the fund should be given the opportunity to vote
on these changes. If an issuer requests exemptive relief to permit
a mutual fund to show pre-conversion performance (which is not
permitted by s. 15.6 of NI-81-102), the OSC will consider whether
such past performance is relevant and useful and will be
appropriately presented and qualified as necessary.
OSC staff expect that fund managers will absorb the merger costs
where conversions are structured as a merger between the closed-end
fund and a mutual fund.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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