- What are some considerations when converting a non-prospectus qualified fund into a prospectus qualified fund?
To begin the process, unitholder approval may be required, which will necessitate a meeting and the accompany costs.
Once approval is obtained, lawyers will need to prepare the simplified prospectus, fund facts and annual information form. Other fund documentation will need to be amended so that it complies with the sales, redemption, suspension and operational requirements of National Instrument 81-102 – Investment Funds (NI 81-102). Prospectus filing fees will need to be paid. Once the fund is prospectus qualified, there will be costs to prepare management reports of fund performance on an annual and interim basis. Unitholders will need to be contacted annually in order to inquire if they wish to receive financial statements. Additionally, some web site development costs will arise. For example, a firm with a prospectus qualified fund has to host their proxy voting records on the site, as well as quarterly reports of portfolio investments. The fund will likely incur extra expenses on fund compliance in order to ensure that it is on side at all times with NI 81-102. An independent review committee will need to be established.
Additional costs to consider:
- Translation costs, if an offering is made in Québec
- Incremental premiums for directors and officers and errors and omissions insurance
- Possible increase in audit fees (and if the fund has existing auditors, they will need to consent to being named auditors of a public fund)
- At least initially, the fund will incur additional expenses on marketing compliance because the rules surrounding disclaimers and performance reporting are prescriptive
There are other considerations involved and the above constitutes a high level overview.