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17.5.5 Simplified Prospectus

Detailed guide on the simplified prospectus required for mutual funds, including its components, annual filings, and associated documents such as the annual information form.

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.


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## What is a simplified prospectus for a mutual fund? - [ ] A detailed financial statement - [ ] A document summarizing an investor's portfolio - [x] A simpler, shorter prospectus providing essential information about a mutual fund - [ ] A government bond report > **Explanation:** A simplified prospectus is a concise document that provides essential information about a mutual fund, designed to be easier to read and understand than typical detailed prospectuses. ## How often must the simplified prospectus be filed with the securities commission? - [ ] Monthly - [x] Annually - [ ] Every 5 years - [ ] Upon investor request > **Explanation:** The simplified prospectus must be filed annually with the securities commission unless there are significant changes to the fund. ## What must be included in Part A of the simplified prospectus? - [x] Introductory information about the mutual fund and general information about mutual funds - [ ] Detailed investment strategies of the specific fund - [ ] Historical performance data - [ ] Information on legal proceedings > **Explanation:** Part A of the simplified prospectus provides introductory information about the mutual fund and general information about mutual funds. ## What must be included in the simplified prospectus? - [ ] Advertising slogans of the mutual fund - [x] Risk factors and description of the securities being offered - [ ] Only detailed past performance statistics - [ ] Only management biographies > **Explanation:** The simplified prospectus must include risk factors, a description of the securities being offered, and other essential information to make an informed investment decision. ## When must a simplified prospectus be amended? - [ ] Every time a new investor joins the fund - [x] Concurrently with the Fund Facts document when material changes occur - [ ] Every quarter - [ ] Monthly, regardless of changes > **Explanation:** The simplified prospectus must be amended at the same time as the Fund Facts document when material changes to the mutual fund occur. ## Who must the simplified prospectus be delivered to upon request? - [ ] The SEC - [ ] Only institutional investors - [x] Mutual fund investors - [ ] Insurance companies > **Explanation:** Mutual fund investors must be provided with the simplified prospectus upon request. ## What type of funds cannot use the simplified prospectus system as stipulated under NI 81-101? - [ ] Equity funds - [ ] Bond funds - [ ] Balanced funds - [x] Funds that invest in real property > **Explanation:** Funds that invest in real property cannot use the simplified prospectus system under NI 81-101. ## What financial documents must be made available to investors on request as part of the simplified prospectus system? - [x] Annual audited financial statements and semi-annual unaudited financial statements - [ ] Monthly bank statements - [ ] Daily transaction reports - [ ] Legal compliance reports > **Explanation:** Annual audited financial statements and semi-annual unaudited financial statements must be made available to investors upon request. ## What information must be disclosed in the introductory statement of the simplified prospectus? - [ ] Past investor testimonials - [ ] Contact information for all fund managers - [x] The purpose of the prospectus and identifying other necessary documents for investors - [ ] Detailed biographies of the Board of Directors > **Explanation:** The introductory statement must describe the purpose of the prospectus and identify any other documents that the fund must make available to investors. ## What additional information is found in the Annual Information Form (AIF) that is not typically found in the simplified prospectus? - [ ] Daily NAV reports - [ ] Annual economic forecasts - [x] Significant holdings in other issuers and tax status of the issuer - [ ] Daily stock price updates > **Explanation:** The AIF contains additional details like significant holdings in other issuers and the tax status of the issuer, among other specifics.

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Tuesday, July 23, 2024