Bill 140 2008

An Act to amend the Securities Act with respect to mutual funds

Note: This Act amends the Securities Act.  For the legislative history of the Act, see the Table of Consolidated Public Statutes – Detailed Legislative History on www.e-Laws.gov.on.ca.

Her Majesty, by and with the advice and consent of the Legislative Assembly of the Province of Ontario, enacts as follows:

   1.  Subsection 1 (1) of the Securities Act is amended by adding the following definition:

"mutual fund manager" means a person or company that directs the business, operations and affairs of a mutual fund; ("gestionnaire de fonds mutuels")

   2.  Section 121.1 of the Act is repealed and the following substituted:

Authorized exceptions to prohibitions

   121.1  If the regulations so provide, a body established under subsection 121.4 (1) by an investment fund other than a mutual fund in Ontario or under subsection 121.6 (1) by a mutual fund in Ontario may approve a transaction that is prohibited under this Part and, in that case, the prohibition does not apply to the transaction.

   3.  (1)  Subsection 121.4 (1) of the Act is amended by striking out "If required to do so by the regulations" at the beginning and substituting "If required to do so by this Act or the regulations".

   (2)  Subsection 121.4 (2) of the Act is repealed and the following substituted:

Same

   (2)  Unless otherwise provided for in this Act, the body has such powers and duties as may be prescribed.

   4.  The Act is amended by adding the following Parts:

part xxi.2
mutual fund governance

Application

   121.5  Despite Part XXI.1, this Part applies to every mutual fund in Ontario.

Oversight, etc., of mutual funds

   121.6  (1)  Every mutual fund in Ontario shall establish and maintain an independent board of directors for the purposes of overseeing activities of the mutual fund and the mutual fund manager, reviewing or approving prescribed matters affecting the mutual fund, including transactions referred to in section 121.1, and disclosing information to security holders of the fund, to the mutual fund manager and to the Commission.

Duties of board of directors

   (2)  The board of directors shall act in the best interests of the mutual fund and its security holders, and its duties shall include,

  (a)  overseeing the establishment and implementation of policies related to conflict of interest issues;

  (b)  monitoring compliance with the conflict of interest policies;

   (c)  monitoring fees and expenses, and their allocation;

  (d)  receiving and reviewing reports from the mutual fund manager;

  (e)  reviewing the appointment of the fund's auditor;

    (f)  meeting regularly with the fund's auditor; and

  (g)  approving material contracts.

Composition

   (3)  A majority of the members of the board of directors must be independent of the mutual fund's management company and may not be independent members of the management company's board of directors.

Terms of office

   (4)  The members of the board of directors shall hold office for three years.

Election of directors

   (5)  Subject to subsection (6), the members of the board of directors shall be elected in accordance with the regulations and the rules of the board.

Nomination of directors

   (6)  The first board of directors of a mutual fund shall be nominated by the mutual fund's management company and elected in accordance with the regulations.

Retaining services

   (7)  The board of directors may employ or retain independent legal counsel and other independent advisors for the purpose of carrying out the functions and powers of the board.

Right to terminate manager

   (8)  The board of directors may terminate the employment of the mutual fund manager if the board is of the opinion that the manager is putting his or her interests ahead of those of the fund's security holders by way of self-dealing, conflict of interest transactions or any other breach of his or her duties.

Right to redeem units

   (9)  If the board of directors is of the opinion that the mutual fund manager has put his or her interests ahead of those of the fund's security holders under subsection (8), the board shall give notice to the fund's security holders and the fund's security holders shall be given the opportunity to redeem their units of the mutual fund at no cost within 30 days from delivery of the notice.

Remuneration and expenses

   (10)  The board of directors shall pay members of the board the remuneration and reimbursement for expenses that the board sets.

Board may oversee multiple funds

   (11)  A board of directors may act as the board of directors for one or more mutual funds.

Names and contact information of board members

   (12)  The name and contact information for every member of the board of directors shall be made available to the fund's security holders.

part xxi.3
mutual fund fee disclosure

Definitions

   121.7  In this Part,

"advertisement" includes television and radio commercials, newspaper and magazine advertisements and all other sales material generally disseminated through the communications media; ("annonce publicitaire")

"benchmark" means the prescribed standard against which the performance of a mutual fund is measured; ("repère")

"management expenses" means the total expenses of a mutual fund, before income taxes, for the fiscal year or interim period, as shown in the statement of operations, plus any other fee, charge or expense of the mutual fund that has the effect of reducing the mutual fund's net asset value; ("frais de gestion")

"management expense ratio" means the ratio, expressed as a percentage, of the expenses of a mutual fund to its average net asset value, calculated in accordance with Part 15 of National Instrument 81-106 of the Canadian Securities Administrators; ("ratio des frais de gestion")

"performance data" means a rating, ranking quotation, discussion or analysis regarding an aspect of the investment performance of a mutual fund; ("information sur le rendement")

"prescribed" means prescribed in the regulations; ("prescrit")

"total return" means the annual compounded rate of return for a mutual fund for a period that would equate the initial value to the redeemable value at the end of the period, expressed as a percentage, calculated in accordance with Part 15 of National Instrument 81-102 of the Canadian Securities Administrators. ("rendement total")

Disclosure of management expenses in advertisements

   121.8  If an advertisement for a mutual fund refers to a return on the fund, the return must be expressed net of management expenses.

Advertisements that refer to historical returns

   121.9  (1)  If an advertisement for a mutual fund refers to the performance data of the fund, the following conditions must be satisfied:

    1.  The advertisement must include a statement of the most recent management fees charged by the mutual fund expressed as a management expense ratio.

    2.  The advertisement must include a statement of any fees charged to the fund's security holders and that are not included in the management expense ratio, such as purchase fees and redemption fees, and fees charged by financial intermediaries, such as deferred sales charges.

    3.  The advertisement must include a comparison between the mutual fund returns and benchmark returns.

Same

   (2)  In addition to the conditions set out in subsection (1), an advertisement for a mutual fund that refers to performance data must express the difference between the per cent total return of the fund and of the benchmark for the period since its inception and over any of the periods of the last one year, three years, five years, or 10 years during which the fund existed, as calculated using the formula "A – B" in which,

  "A"  is the total return of the fund for the period expressed as a percentage, and

  "B"  is the benchmark for the period expressed as a percentage.

Commencement

   5.  This Act comes into force one year after the day it receives Royal Assent.

Short title

   6.  The short title of this Act is the Securities Amendment Act (Mutual Funds), 2008.

 

EXPLANATORY NOTE

The Bill amends the Securities Act to require mutual funds to establish and maintain an independent board of directors to oversee the activities of the mutual fund and the mutual fund manager and to act in the best interests of the mutual fund and its security holders.

The Bill also amends the Act to require certain mutual fund advertisements to disclose the costs and fees charged by the fund to security holders and to express the difference between the per cent total return of the fund and of the benchmark.