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The CSA has issued Staff Notice No. 81-306 relating to the disclosure by mutual funds of changes in the calculation of management expense ratios ("MERs"). Section 16.1 of National Instrument 81-102 (Mutual Funds), which came into force on February 1, 2000, changes the method of calculation of MERs for mutual funds and has the effect of requiring mutual funds to re-calculate MERs for financial periods that ended before the National Instrument came into force. After the National Instrument was published in final form in November 1999, the CSA received submissions from the Investment Funds Institute of Canada and fund companies to the effect that calculating MERs for financial periods that ended before February 1, 2000 in accordance with section 16.1 would be very difficult, if not impossible, given the lack of data. In accordance with these submissions, the CSA published, on January 28, 2000, a series of amendments to the National Instrument to provide that restatement of MERs in accordance with section 16.1 is not mandatory for financial periods of mutual funds that ended before February 1, 2000 (proposed section 16.3). Funds would have the option of restating MERs for prior periods in accordance with the National Instrument or disclosing MERs for those periods as calculated in accordance with securities legislation in force as at January 31, 2000. Proposed revisions to section 20.3 of the National Instrument will clarify that the National Instrument does not apply to reports to securityholders that include only financial statements that relate to financial periods that ended before the National Instrument came into force.
In the January 28, 2000 Notice accompanying the proposed amendments, the CSA outlined that they are examining the implications of the proposed rule amendment in the context of Canadian generally accepted accounting principles ("GAAP") and mutual fund financial statement presentation. CSA staff propose to recommend that the CSA amend the Companion Policy to provide guidance to mutual funds on the need to disclose the effect of a change to the calculation of MER when the MER for prior periods is not restated. In the interim, the CSA has published a Staff Notice to provide guidance.