The Canadian Association of Income Funds (CAIF) says it supports the Canadian Securities Administrator’s proposed National Instrument 41-201 Income Trusts and Other Indirect Offerings, which was issued for comment on October 24.

CAIF is a national association of Canadian public income funds, publicly listed partnerships, income trusts and royalty trusts that own active businesses.

The growing sector reflects a significant portion of all listings on the Toronto Stock Exchange, with a combined market capitalization of more than $75 billion. From its beginning less than a year ago, CAIF currently represents the interests of more than 33 members, from coast to coast.

In a written submission to the CSA, CAIF said it believes that the proposal will encourage the long-term development of income funds by enhancing the quality and nature of prospectus and continuous disclosures of income funds.

However, CAIF said it has identified a number of issues that the various securities regulators within CSA may wish to consider prior to finalizing the proposed instrument.

As an example, CAIF said that although it supports the CSA view that investing in an income fund is more like an investment in an equity security, it believes that the several references to “non-taxable” returns of capital in the instrument may be misleading. CAIF would prefer that the CSA change such references “tax deferred” returns of capital.

In its submission, CAIF also pointed out that income funds generally operate with modest financial leverage. It added that their management teams are typically more risk averse and thus often make greater use of interest-rate hedging and/or refinancing-risk mitigating strategies.

CAIF has also offered to provide the CSA with additional assistance in the ongoing development of the proposed instrument.