OSC asks investment fund managers to consider budget changes to forward agreements

The Ontario Securities Commission yesterday released a staff notice setting out the issues that investment fund managers should consider in light of the recent federal budget. Specifically, under proposed amendments to the Income Tax Act, distributions to unitholders of a mutual fund resulting from partial or full settlements of a forward agreement will now be treated as income distributions.

According to OSC Staff, investment fund managers should consider the effects of these changes on their funds, especially if the income conversion feature is an "essential" aspect of the fund, and specifically with respect to compliance with their disclosure obligations and the need for communication with current securityholders. The notice also suggests that managers consider on a longer-term basis whether to cap affected funds to new and additional investments, whether changes to funds' investment objectives and strategies will be needed, and whether funds need to be restructured, reorganized or terminated.

For more information, see OSC Staff Notice 81-719.

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