On September 8, 2008, long-anticipated amendments to National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") are scheduled to come into force allowing the investment fund industry to continue to calculate a fund's net asset value ("NAV"), for all purposes other than financial statement reporting, according to fair value. Fair value is defined in NI 81-106 as the market value based on reported prices and quotations in an active market or, if the market value is unavailable or the fund manager believes that it is unreliable, a value that is fair and reasonable in all the relevant circumstances. NAV includes the income and expenses for the investment fund accrued up to the date when the calculation is made.
For financial statement reporting purposes, net asset value (which is referred to as "net assets") must be calculated in accordance with Canadian generally accepted accounting principles. The amendments to NI 81-106 will require the difference between NAV per security and "net assets" per security as shown on the financial statements to be explained in the notes to the financial statements.
Had these amendments not been made, investment funds would have been required to calculate net asset value for all purposes in accordance with Canadian GAAP. Due to the introduction in 2006 of Section 3855 Financial Instruments – Recognition and Measurement of the CICA Handbook, this would have required publicly traded securities held by an investment fund to be valued at bid or ask price on each valuation day rather than the more predominantly utilized closing price.
Please click on the following
link for the complete text of the amendments to NI
81-106:
http://www.osc.gov.on.ca/Regulation/Rulemaking/Current/Part8/rule_20080620_81-106_amd-inv-fund-cd.pdf.
For more information on the subject of this bulletin, please contact the author or any other member of Fasken Martineau's Investment Products & Wealth Management Group:
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Fasken Martineau's Investment Products & Wealth Management Group, comprised of lawyers with expertise in corporate/securities, tax and trust law, is known as one of the leading investment products and wealth management legal practices in Canada. The achievements and expertise of partners in our group are consistently recognized in notable and prestigious publications. We act for public mutual funds, private investment funds, exchange-traded funds, labour-sponsored venture capital funds, commodity pools, special purpose investment vehicles, and mutual fund managers, investment advisers and dealers. In particular, we act for leading Canadian fund sponsors in the three major investment fund areas, namely open-end mutual funds, closed-end investment funds and exchange-traded funds. In our broad practice we deal with a range of investment management issues impacting issuers, managers, distributors, financial institutions and service providers on a regular basis. We have excellent relationships with the Canadian securities administrators and other government and private organizations involved in the investment management industry. We also have been at the centre of Canada's fund governance initiatives.
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