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UBC Theses and Dissertations

Growth study of the Canadian mutual fund industry Dyson, Paul Henry Charles 1969

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A GROWTH STUDY OF THE MUTUAL FUND  CANADIAN  INDUSTRY  by PAUL HENRY C H A R L E S DYSON B.S.(Bus.)» U n i v e r s i t y o f I d a h o ,  1964  A T H E S I S S U B M I T T E D I N P A R T I A L F U L F I L M E N T OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS OF B U S I N E S S A D M I N I S T R A T I O N  in  Commerce  We  accept  THE  the Department of and B u s i n e s s Administration  t h i s t h e s i s as c o n f o r m i n g required standard  U N I V E R S I T Y OF B R I T I S H N o v e m b e r , 1969  to the  COLUMBIA  In  presenting  requirements British freely agree  my  that for  1 agree  scholarly  financial  or  at  the  the  Library  reference  and  study.  for  extensive  purposes by  his  copying  gain  degree  fulfilment  that  permission  that  in partial  advanced  for  Department  written  thesis  an  Columbia,  understood for  for  available  thesis of  this  or  shall  may  I  not  be  of  allowed  make i t  of  this  by  the  It this  without  Department  of  Commerce  and  The U n i v e r s i t y o f B r i t i s h V a n c o u v e r 8, C a n a d a November  7  ,  1969  Business Columbia  Head  is  thesis my  permission.  C.  of  further  representatives.  PAUL H.  Date  shall  granted  publication  the  University  copying be  of  DYSON  Administration  i i ABSTRACT  The  Canadian  recognized mediary  this  i n Canada.  growing  and  been  the  well  financial  inter-  industry  as  the reasons behind i t s fundamental  e x a m i n a t i o n encompasses  Canadian  capital  growth  industry  relative  Canadian  discussed standing ized,  market  operating  the  purpose  fund  of  growth,  financial services  how  institutions, they provide  background  attractiveness effective  and  of the mutual which  insight  is attained,  factors  that  have  a basic  how  under-  other  or  been  public  financial  to other  financial  provides insight  i t has  organ-  they are  fund package sold.  fund  fully  they are  from  benefits  i t is possible  created  mutual  institutions.  they have  finally,  information  means by  package.  what  also  i s t h e n more  they d i f f e r  relationships  It  financial  a r e , how  of  financial  the Canadian  industry  funds  study  market.  the reader w i t h  o f what m u t u a l  what  in this of  a brief  of the  to o t h e r major  to provide  their  and  position  mutual  institutions,  fund  has  theses.  confirms  This  industry  examination of this  represents  intermediaries  The  An  intermediary  growth  This the  fund  as b e i n g t h e f a s t e s t  a financial rapid  mutual  sold.  into  and  the  the  Once  this  to analyze the  interest  i n the  mutual  i i i A projection then  attempted  expected and new  on s o c i a l  specific industry demands  this  innovations  diversified  dollar-cost  investment  package  investors. remarkably through the  A t t h e same  which  Canadian  Secondly, factors  have funds;  growth  from  are of  financial  marked  public  mutual  fund  by m u t u a l  on a n a t i o n a l  causing  An a n a l y s i s which  t o expand  administrative funds  a very a t t r a c t i v e to potential has been of d i s t r i b u t i o n  has been  sold to  certain environmental public  interest in rapid  environmental  through  o f each have  professional  of mutual  funds  net savings,  p r e f e r e n c e t o save  industry  with  the industry's These  industry.  basis.  tremendous  i n personal  developments  fund  of savings  form  s o p h i s t i c a t i o n by C a n a d i a n  institutions. reveals  combined,  services .  as a r e s u l t  accumulation plans,  fund package  1957 t o 1 9 6 8 .  the growth  the pooling  i t i s concluded that  hence  mutual  i n developing channels  stimulated  mutual  are reached  time, the industry  the mutual public  creating  of f i n a n c i a l  averaging, variety  offered  successful  to  p o r t f o l i o combined  w i t h d r a w a l r i g h t s , when  changes  of investment  geared  range  i t i s concluded that  features,  form  study of the Canadian  management, m a r k e t a b i l i t y ,  and  and t e c h n o l o g i c a l  interesting conclusions  a single  of the industry i s  fund  f o r an e x p a n d i n g  growth  Firstly, in  based  growth  to favour the mutual  Many of  of the future  a  asset  factors  development s a v e r s and a specific  one o f  these  financial factors  enabled the Canadian i t s assets.  iv  The  growth  been as  i n personal  accompanied  a means  approach  by a d e s i r e  of i n f l a t i o n  f o r such  growth  an  attractive vehicle also  corporations.  desire  development has  been  which  of  of f i n a n c i a l  In  to and  include  which  The  growing  through  financial  understand,  assumes  that  investment. is  based  upon  community. effect class the  investors  hands  A  a broader  and o t h e r  have b e n e f i t e d  tendency  problems the class  toward  from  for this  of the wealthy.  of  investment  difficult financial  sophistication  indirect to direct inconsistent  i n the Canadian structure  holdings  offering counselling  indirect  increasing  range  financial  i n terms  i s somewhat  o f common s t o c k  as l a r g e  savers  rewards are  amount o f i n v e s t m e n t  explanation  on t h e a m o u n t  investors  management.  t h e i r package  i n d i v i d u a l s progress  First,  represented  f o r investments i n  funds  altered  institutions  three  i n equities  p a r t i c i p a t i o n by  have demanded  e s p e c i a l l y when  The  have  investment  Mutual  management  growth.  to  they  an i n c r e a s e d  investment  traditional  b u t where p o t e n t i a l  have  return  s o p h i s t i c a t i o n by C a n a d i a n  services.  institutions  has  of  to invest  funds  b y t h e i r demand  addition,  financial  rates  The  has been  f o r equity  r i s k s are large  great.  f o r higher  Mutual  professional  revealed  f o r instance  protection.  protection  of  who  net savings,  financial  has had a  available  become  trend  limiting  to middle  consolidated  in  V  Second,  there  becoming  available  for  equities.  the  United  service three his  i s a shortage  begun  small investment  The  by p a r t i c i p a t i n g  through  offering  the Canadian  to  maintain i t s relative  gain wider  this  industry  enhance fund  position  of expected fund  acceptance.  expansion.  financial  t h r e e such  of f i n a n c i a l  over  a wider  range  of  financial  i n this  will  social  and  concept  strides  of  immediate technological investing  of innovations,  which  and v e n t u r e  should  and t o s p r e a d  activities.  mutual funds  A l lt h r e e w i l l investors  study  continue  i n the  In terms  complexes  innovations.  services  equities  The f o r m a t i o n o f  to provide potential  line  these  altered  and o t h e r  industry  h a s made t r e m e n d o u s  complexes,  industry  growth  of  opportunities.  fund  the mutual  public  i t sfuture  represent the  that  funds  i n the  conclusion reached  mutual  An e x a m i n a t i o n  will  mutual  similiar  and f i n a l  reveals  t o show a r e l u c t a n c e t o  has g r a d u a l l y  that  changes  i n Canada and  the small investor  is  future.  firms  demand  As a r e s u l t  strategy  third  equities  accounts.  indirectly  institutions  of  t o an e x p a n d i n g  brokerage  S t a t e s have  investment  markets  in relation  Third,  problems,  i n the supply  with  an  enable integrated  operating costs  vi TABLE  OF  CONTENTS  CHAPTER I.  PAGE  INTRODUCTION  1  Importance  of the Study  1  Methodology  3  Organization Limitations  of Chapters  5  of the Study  8  D e f i n i t i o n s o f Terms Statistical II.  CANADIAN  Used  10  Data  FINANCIAL  11 I N T E R M E D I A R I E S AND  THE  C A P I T A L MARKET The  14  C a p i t a l Market  and R o l e  of Financial  Intermediaries The  Development  15 of Canadian  Financial  Intermediaries History Growth  18  of Canadian of Canadian  financial financial  institutions.  i n t e r m e d i a i r e s . 20  Summary III.  22  C A N A D I A N MUTUAL FUNDS AS  FINANCIAL  INTERMEDIARIES Mutual  Funds  Open-end  24  as I n v e s t m e n t  investment  Companies  companies  Closed-end Organization Fund  Financial  25  (mutual  funds)  Mutual  18  28 investment  companies  of Canadian Relationships Institutions  Mutual to  Funds  32 34  Other 38  vi i CHAPTER  PAGE Canadian  Mutual  Benefits  Attached to Mutual  Professional  Fund  Growth  Statistics  40  Fund  42  Ownership..  management  42  Diversification  43  Liquidity  43  and m a r k e t a b i l i t y  Regularity  of investing  Voluntary Prepaid  44  accumulation plan  or c o n t r a c t u a l  44  plan  45  Convenience Dollar  cost  Variety  45 averaging  of mutual  Temporary M u t u a l . Fund  46  funds  46  withdrawal  49  Channels  50  of D i s t r i b u t i o n  Summary IV.  PUBLIC  58  ACCEPTANCE  Personal  62  Net Savings  Development Investing Class  OF MUTUAL FUNDS  64  of Financial  through  structure  Sophistication......  Financial  Institutions  i n Canadian  79  equities  markets Canadian  73  79 equities  - s u p p l y a n d demand  factors  82  The  supply of Canadian  The  demand  f o r Canadian  The  result  of excess  equities  equities.  83  equities  93  demand  f o r Canadian 97  vi i i CHAPTER  PAGE The  financial  community  and t h e s m a l l  investor  101  Summary V.  104  GROWTH P O T E N T I A L  FOR  CANADIAN  MUTUAL  FUNDS  107  Canadian  Mutual  Technological Mutual  Funds  Funds  and S o c i a l  and  Changes  110  and t h e I n n o v a t i o n  Process  115  Financial  complexes  117  Financial  counselling  125  Venture  funds  - performance  aspect  Summary VI.  133  SUMMARY AND  CONCLUSIONS  Methodology Summary  128  136  Reviewed  136  and C o n c l u s i o n s by C h a p t e r  Opportunities  f o r Other  Studies  137 150  BIBLIOGRAPHY  151  APPENDIX  157  ix LIST  OF  TABLES  TABLE I.  PAGE Growth  in Total  Financial II.  Canada's as  III.  IV.  over  June  30 , 1967  VIII.  Net  E.T.  Corporate 1957  XII.  Net  the  Salesmen 56  and  Savings  Stock  Holdings  Groups  72  Market  81 Issues  in  - 1966  91  Investments  Stock,  1960  in  Canadian  - 1965  - Estimated  Equities  94 Investment  - Book V a l u e Mutual  Held  1961  and  in 97  Funds  Offered  Public  Assets  Funds  Force  67  and  S p e c u l a t i v e Canadian to  at  Sales  Security  § A.Accounts  Canadian XI.  as  48  Companies  - 1968  Stock  Institutional  Complexes  30 , 1967  of Growth  Corporate X.  Direct  Selected Financial  New  21  54  1957  Who's i n t h e  1968  ;  Distribution  Salesmen  at June  Canada,  to  Fund  Income, E x p e n d i t u r e s  Canada, IX.  Fund  200  Region  Comparison  Canadian  31 , 1 9 6 7 . . .  C o n c e n t r a t i o n of  of VII.  Mutual  with  in VI.  Largest Mutual  December  Personal  of Major  I n t e r m e d i a r i e s , 1957  Five  Canadian  by V.  at  Assets  131 by  Category  1967  of  Mutual 142  X  LIST  OF  FIGURES  FIGURE 1.  PAGE  Appearance of Selected in  2.  Canada  Percentage Personal Savings  Financial  Institutions  by Decades Growth  19  i n Personal  Disposable  Income,  as a P e r c e n t a g e  Net Savings and P e r s o n a l  of Personal  66  3.  Zones  4.  Internal  5.  Percentage  of Financial Corporate  Domestic The  The  Sophistication  75  Financing  85  Breakdown Capital  Investors  Affiliated 7.  Net  Disposable  Income  6.  and  Formation  Group  Subsidiary  Group  Subsidiary  Companies  of 86'<  and  Companies  Collective  Affiliated  of the Financing  123 and 126  xi  ACKNOWLEDGMENTS  The  w r i t e r wishes  appreciation and in  Professor making  research Mutual the  to the late Peter  possible  h i s sincere  Professor  writer  by t h e Canadian  assistance  and Investment  Committee  Contracts. W.  the death  of Professor  on  In a d d i t i o n , Winiata f o r  the p o s i t i o n of thesis adviser  after  G. J . Wong  t h e r e t e n t i o n o f t h e w r i t e r as  writer i s grateful to Professor  accepting  Leslie  A. L u s z t i g f o r t h e i r  co-ordinator  Funds  to express  Wong.  to the  CHAPTER  I  INTRODUCTION  This  i s a paper  as  o n e o f t h e many  in  the Canadian  herein  will  about  financial  capital  intermediary  and a t t e m p t  rapid  since  be  made  upon  about  trends  social  the future  developing  It  of finance  intermediaries  from  the  contribution  the  economic  of  the role  market  clear  w h e n we  that  this  based through  innovations .  other  study w i l l  Canadian  o f Canada,  of  made  toward  a clear understanding  by t h e s e i n t e r m e d i a r i e s by a l l members  of the  have  inspire  financial  Because  intermediaries  i n terms  will  STUDY  The i m p o r t a n c e o f t h i s think  for i t s  community  t h e same v i e w p o i n t .  be s o u g h t  financial  a prediction  and f i n a n c i a l  OF THE  hope  as a  of the industry  changes  financial  played  community.  growth  industry  purpose  the reasons  In a d d i t i o n ,  t o examine  development  should  to isolate  IMPORTANCE  i s the w r i t e r ' s  students  industry  fund  operating  The p r i m a r y  i n the f i n a n c i a l  and t e c h n o l o g i c a l  I.  this  1957.  mutual  intermediaries  market.  be t o e x a m i n e  growth  the Canadian  i n the  capital  of the business  u n d e r s t a n d i n g becomes economic  2  development for  continuing It  This of  that  development  i s often  people  available  resources  exploration list  indicate  the uses  some  and t h e c a p i t a l  be e x p a n d e d  the past  in  the future.  useful  upon, but w i l l  would  without  an e x p a n d e d  u s e o f money  very  primitive  societies  back  because  f o r goods  and s e r v i c e s  group.  I n some  claims  entitling  the holder  issuer  according  to specified  society  these claims  requiring As  funds  a nation  economic a capital itself  cases  credit  may  market.  i s a market  In simple where  In  i s held can  utilize  from another  may b e e x t e n d e d w h i c h payment  involves  from the  terms.  In a  primitive  directly  from  one  t o another group  i s accompanied  taken  and c r e d i t .  they desire  with  begins to develop past  growth  have  one g r o u p  to receive  pass  development  development  development  methods  to  economic  n o t , however,  economic  Obviously,  suffice  f o r continued  development  paying  p r o d u c t s from  to finance the  Economic  in  opportunity.  quantity  of these resources.  and t h e p o t e n t i a l  of the l i m i t e d  of  of the Canadian  of the reasons f o r Canadian  in  place  i s a land  f o r these resources, the  f o r developing  and e x p l o i t a t i o n  could  Canada  the i n t e l l i g e n c e  i n recognizing  natural  and t h e o u t l o o k  of the seemingly endless  resources,  technology  i n Canada  i n the future.  expressed that  i s so b e c a u s e  natural  this  has t a k e n p l a c e  surplus  group  funds .  the p r i m i t i v e  by t h e d e v e l o p m e n t terms, the c a p i t a l  intermediate  stage, of market  and l o n g - t e r m  3 funds  are gathered  capital,  and where  outstanding The of  instruments  referred  are performed  t o as f i n a n c i a l  o f any l a r g e u n d e r t a k i n g  a  market  it  up.  and  in  I t has been  have  institutions  i s facilitated  by t o back  the existence of the capital  market  intermediaries operating i n this  assisted  i n making  economic  market  development p o s s i b l e  Canada.  II.  The was  above  necessary  importance extensive be a  by  and t h e i n s t i t u t i o n a l m a c h i n e r y  the f i n a n c i a l  that  and t r a n s f e r r i n g  i n t e r m e d i a r i e s . The  financing capital  are already  of gathering, altering  and i n s t r u m e n t s  commonly  that  to the users of  are transferred.  process  funds  a n d made a v a i l a b l e  d i g r e s s i o n from to assist  of a study study  with  decided  to limit  Nevertheless, the  reader  of financial  task  this  of this  study  intermediaries.  An  i n t e r m e d i a r i e s would importance;  For this  reason  t o one f i n a n c i a l  however, to accomplish  the writer intermediary.  o f one i n t e r m e d i a r y r e q u i r e s  some b a c k g r o u n d  paper  i n appreciatingthe  f o r one i n d i v i d u a l  of success.  a study  have  the reader  of significant  ambitious  any degree  the purpose  of a l l financial  an u n d e r t a k i n g somewhat  METHODOLOGY  i n f o r m a t i o n on what  that  4 the  capital  are,  the  they  have  of  the  begin of  market  role  dual  Then on  purpose  of  There  are  about  mutual  the  fund  and  the  mutual  this  and  to  years.  Thirdly,  of  many o f  serving  as  Committee  other  the  the  research  Mutual  will  mutual  will  will development  serve  of  financial  this  financial fund  industry  intermediaries.  be  concentrating  writer  than  of  decided  the  any  i t i s the to  other  and  has  major  financial  writer's  prediction  maintain  i t s growth  intermediaries , for developed  aspects  to  Canadian  intermediary  of  co-ordinator  Funds  and  growth  w r i t e r has  operational  growth which  the  continue  the  on  why  1957  financial  study  Because  industry.  Firstly,  will  how  this  function  we  and  development.  Canadian  future  Secondly,  relative  the  the  study  reasons  past  industry  of  major  fund  grown more r a p i d l y s i n c e  that  the  other  of  three  and  intermediaries  to  market  information,  where  industry.  intermediary.  growth  explaining  balance  Canadian  of  intermediaries  capital  discussion  in relation  the  financial  i n the  such  financial  i n the  write  for  a simple  intermediaries, stands  play  i n terms  necessity  Canadian  the  they  fared  with  i s , what  an  this on  Investment  several appreciation  industry  The  by  Canadian  Contracts,^  A p p e n d i x A., c o n t a i n s a d e s c r i p t i o n of the formation a n d r e s p o n s i b i l i t i e s o f The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s and I n v e s t m e n t C o n t r a c t s . The r e a d e r i s encouraged to read t h i s d e s c r i p t i o n before p r o c e e d i n g i n t o the t e x t of the s t u d y .  5  III.  The  study  sequence purpose are a  has been  of the t h e s i s .  final  chapters chapter  Chapter growth  begins  discussion in  "capital  the c a p i t a l  accomplished, of  financial  appearance glimpse  market. i twill  of the nine  Canadian  intermediary  are, in  with  how  size,  confirm  the development date  major  of A Canadian  the growth  how  differ  as a  leadership  financial  consideration  i s included  understanding  funds  a  1957 t o 1 9 6 8 .  industry  under  are organized, mutual  into  industry.  fund  the chapter  a basic  they how  mutual  i s the topic  Primarily  reader  fund  definition  been  of their  i n assets  mutual  of  intermediaries  to discuss  at the growth  of. t h e C a n a d i a n  III.  has  from  should  a  proceed  i n assets  intermediaries  review  provide  task  i n terms  plus  financial  by f i n a n c i a l  be p o s s i b l e  there  conclusions.  a brief  and t h e n  Once t h i s  intermediaries  and  and g r o w t h  financial  The  i twill  the  of the thesis  of Canadian  played  logical  chapter,  t h e summary  market",  of the role  this  t h e body  Initially  a  to accomplish  by p r o v i d i n g  and d e v e l o p m e n t  the term  to provide  Following  representing  II  CHAPTERS  necessary  containing  intermediaries. of  OF  organized  of relationships  four  the  ORGANIZATION  i n Chapter  to provide  o f what m u t u a l the industry from  other  has  the funds grown  financial  6  institutions,  what  institutions,  what b e n e f i t s  provide In  and  short,  the  finally  the  main  attractiveness  ability the  of  the  public.  third  for  the  Chapter factors and  that  will  by  the  form  of  equity  will  be  the  harmful  by  of  of by  in  the  growth.  equities  mutual  as  markets  show and  having  The  to  and  the to  efficient  to  this  two  industry.  important,  is  an  analysis  A the  of  for  had  industry  first  Three influence  funds  factor  instruments  over  a major  mutual  the  the  intermediaries.  as  a  discussed  net  savings  combined  with  be  protected  against  the  It will  found  offer give  be  shown  some m e a s u r e  equities.  may  product,  fund  towards  have  industry  public.  i s to  preference  financial  corporate  they  public. to  public  inflation.  in  fund  most  devoted  savers  by  the  chapter  of  the  personal  investors  mutual  by  attitude  historically  the  the  the  financial  services  to  fund  other  certainly represent  investment.  concern  investing  the  growth  mentioned  growth  effects  sold  to  d i s t r i b u t e i t s product  would  be  other  public's  growing  to  created  offered  be  are of  have  financial  mutual  product  will  have  upon  a  the  possibly  this  offered  factors  of  impressive  IV  services  those  function  they  a t t r a c t i v e product  and  of  or  they  facilities  reason,  acceptance  how  industry An  distribution reasons  relationships  The  of  ability  that protection of  indirect participation some c l u e  to  its  rapid  7  The savers  development  will  be  cited  shown  that  terms  of seeking  of  risk  be  shown  as  Canadians  that  are very  with  Canadian  the  scale  The  implications  this as  aggressive  rates  of r e t u r n  higher  returns.  might  financial  amount  of  investment counselling  mutual  funds  third  indirect  equity  This  trend  financial  funds  which  have  i n the  equities  of  investors  i n the  stock  Canadian  which  in  toward  merit In  equities  and  It will  also up  time. fund  offer  a  greater  i n v e s t m e n t management;  trend  creating  i n Canada  financial major  public  towards  intermediaries.  problems  i n the  discouraged direct participation  market,  small  can  markets.  the  assumption  The  class  the supply  attitude  investor  o f and  of the  are  the  structure demand  financial three  problems  discussion.  Chapter  light  the  the  services .  i s the r e s u l t of three  investors  community  and  investment through  community  and  s u g g e s t e d as  i s the  by  for  that  f o r such  f a c t o r - : t o be  i n mutual  in  f o r the mutual  intermediaries  renown  interest  investors  sophistication develops,  seek  are  be  have been moving  have  Canadian  It will  s o p h i s t i c a t i o n f o r some  investors  The  out  s o p h i s t i c a t i o n by factor.  investors  of f i n a n c i a l  i s that  a second  higher  associated  industry  of f i n a n c i a l  V,  the mutual  of i t s prospects  This  will  be  a t t e m p t e d by  that  will  continue  fund  industry  for future citing  to enhance  the  growth  some o f t h e growth  is and  considered development.  factors  of the  industry.  8  These and  factors  will  favour  developments within more  they  be  taking  place  the industry receive  innovations  fund  will  Basically,  new  major  It  was  which  recent  financial  theme  of the  will  fund  develop f o r  that  may  create  primarily  considered  be  Although  L I M I T A T I O N S OF  a study  way  industry.  specific  Chapter  •afttftebkfcag.ns  earlier  about  THE  'a--summ^ry  STUDY  i n this  the growth  Thus,  chapter  that  paper  should  as an e x h a u s t i v e  study  of mutual  information material  of providing  this  of the Canadian  this  I I I , this  the purpose  chapter  of the study.  emphasized  fund  for  demands  of  of the mutual  and t h e i n n o v a t i o n s  conclusions  mutual  in  Three  and t h e development  the o v e r a l l  VI , i s t h e f i n a l  IV.  is  counselling  at the p o t e n t i a l o f new  demands.  innovators  demands. Chapter  and  new  through  are the formation  funds.  services,  organizations  the rewards  of  financial  some  most  benefit  financial  in light  favour  Growth  will  improved  industry  the industry.  parallel  the  for creating  i s to look  of  i s made t h a t  complexes,  chapter  because  nature,  A prediction  t o be m e n t i o n e d  venture  and t e c h n o l o g i c a l  industry  within  itself  others.  will  of a social  the mutual  the industry  than  within  will  i s provided has m a i n l y the reader  about been with  i n no  the  funds. industry  included background  9 information in  later  reader is  relevant  chapters.  to appreciate  to isolate  mutual rapid  fund pace  factors maintain  since  report  and  Investment  will  writer  assist  study  limited  information  have  of the w r i t e r  the  body  of knowledge  is  by t h i s  not covered  report  included  some  fund  in;detail  will  have when,  Funds  i n December 1969. information  was p r e p a r e d i n this  by t h e  paper.  statistical  however,  purpose.  i t was t h e  information  I t i s , therefore,  small  i n a s much  individuals  in detail  duplication of  a  industry  on M u t u a l  of this  of the mutual  thesis  at a  industry to  of the s t a t i s t i c a l  that  the Canadian  industry  i s published  no w o r t h w h i l e  hope  provided  of this  incorporated;  the  fund  Committee  been  study  t o examine t h e  i t s operations  of the w r i t e r that  serve  i t s assets  Fortunately,  facets  extent  has been  of this  enabled  of the mutual  Committee's  discussed  p o s i t i o n i n the future.  task.  portion  have  the mutual  growth  Contracts  and c o u l d  feeling  Further,  t o examine  i n this  a very  which  o f The C a n a d i a n  A considerable included  t h e main purpose  to increase  i n t h e many  opportunity  would  that  be a m o n u m e n t a l  the  To  f o rthe  its relative  interested an  I t i s important  1957.  A comprehensive would  o f growth  the reasons  industry  which  to the analysis  contribution to  fund  industry  as t h e t o p i c  i n the report  will  be  o f growth  o f the Committee.  10  A  second  touches the  limitation  lightly  role  Nothing  of  upon  the  financial  will  be  said  as  Canadian  capital  in  the  Canadian  economy.  will  be  expressed  converting fund  by  capital  operate  mutual not  function.  other  the  the  the  of  played  reasons of  for their  this  paper  financial  entire  list  paper,  market  claims of  the  mutual  e x p l a i n the  to  define they  i s to  the  focus  -  roles the  other  do,  how  they  In  other  on  the  intermediary  words,  Canadian and  characteristics  of  intermediaries.  DEFINITIONS  following  of f i n a n c i n g  by  their  of  unless  OF  TERMSi USED  definitions the  context  are  and  efficiency  capital  growth.  a financial with  or  intermediaries in  i s i t intended  market  market.  extent  exception to  i t only  capital  features  the  role  intended  o v e r l y concerned  V.  to  or  the  financial  i n d u s t r y as  Canadian  The  size,  i n terms  With  Nor  concern  fund  t o be  of  i n t e r m e d i a r i e s , e x p l a i n what  or  main  i s that  i n t e r m e d i a r i e s i n the  individual  financial  the  The  purely  market.  the  market  i n d u s t r y , i t i s not  played  study  importance  to  the  financial  this  intermediaries in this  of  Canadian  of  applicable  otherwise  implies:  B r o k e r s . Where u s e d w i t h r e f e r e n c e t o t h e s a l e o f mutual fund s h a r e s , r e f e r s to the s a l e of such shares by o r t h r o u g h f i r m s d u l y q u a l i f i e d i n t h e i r jurisdictions of o p e r a t i o n t o engage i n t r a d i n g i n s e c u r i t i e s and  11  w h i c h s e l l m u t u a l f u n d s h a r e s as one p a r t o f a more g e n e r a l securities business. S a l e s made b y o r t h r o u g h s u c h f i r m s a r e t r e a t e d as made b y b r o k e r s e v e n i f t h e particular s a l e s m a n c o n c e r n e d i s e n g a g e d on a f u l l - t i m e b a s i s i n the sale of mutual fund shares. Direct Sales Force. Where u s e d w i t h r e f e r e n c e t o the sale of mutual fund shares, r e f e r s to the sale of such s h a r e s by o r t h r o u g h p e r s o n s o r companies associated by c o n t r a c t o r o t h e r w i s e w i t h t h e F u n d , t h e D i s t r i b u t i o n Company o r t h e M a n a g e m e n t Company, b u t d o e s n o t i n c l u d e s a l e s t h r o u g h b r o k e r s o r an i n d e p e n d e n t s a l e s f o r c e . D i s t r i b u t i o n Company. Means t h e p e r s o n p r i n c i p a l l y responsible f o r e f f e c t i n g the d i s t r i b u t i o n to the public of m u t u a l f u n d s h a r e s , s u b j e c t t o t h e b o a r d o f d i r e c t o r s of t h e Fund o r t o o t h e r r e l e v a n t a u t h o r i t y , w h e t h e r such r e s p o n s i b i l i t y a r i s e s under a c o n t r a c t w i t h t h e Fund or w i t h t h e Management Company. I f t h e r e i s no s e p a r a t e p e r s o n w i t h such r e s p o n s i b i l i t y , t h e words " D i s t r i b u t i o n C o m p a n y " may r e f e r t o t h e M a n a g e m e n t C o m p a n y . Fund o r M u t u a l Fund. Except where t h e c o n t e x t indicates t h a t t h e r e f e r e n c e i s t o m u t u a l f u n d s g e n e r a l l y , means any C a n a d i a n o p e n - e n d e d i n v e s t m e n t company o r t r u s t . Independent Sales Force. M e a n s a l l s a l e s m e n who s e l l m u t u a l f u n d s h a r e s , a n d who: (a) a r e n o t b r o k e r s o r e m p l o y e d b y b r o k e r s , as d e f i n e d ; (b) a l s o s e l l s h a r e s or u n i t s i s s u e d by m u t u a l f u n d s o t h e r t h a n f u n d s a s s o c i a t e d w i t h t h e Management Company; and, (c) are not employed by o r i n d e p e n d e n t c o n t r a c t o r s o f t h e Management Company, the D i s t r i b u t i o n Company o r c o m p a n i e s r e l a t e d t o them. Management Company. Means t h e p e r s o n p r i n c i p a l l y r e s p o n s i b l e f o r a d v i s i n g t h e Fund c o n c e r n i n g t h e s e l e c t i o n and s u p e r v i s i o n o f p o r t f o l i o s e c u r i t i e s . The " D i s t r i b u t i o n C o m p a n y " r e f e r s t o t h e same c o m p a n y as the M a n a g e m e n t Company i f t h e two f u n c t i o n s a r e n o t s e p a r a t e d w i t h r e f e r e n c e t o t h e Fund.  VI.  Included extracted of  The  i n this  from  Canadian  Contracts.  STATISTICAL  paper  the f i n a l Committee  DATA  a r e a few s t a t i s t i c a l  draft  tables  chapters of the report  on M u t u a l  Funds  and  Investment  12 As  explained  the  writer  fund  table  of  by  are  which  have  replies  Fund  and  and  mutual  industry.  to  specify  a l l the  statistical In  final  figures  Chapter  IV,  partly  on  demand  f o r Canadian  in  these p a r t i c u l a r  until  the  updating against sections  end this  of  of t h i s  to the  d o i n g so b e c a u s e  statistical  used  appear  included  in  of  were Committee  circulated  to . generate  only  writer end  the  s u p p l y o f , and  been p r o v i d e d  1968,  the  information  seriously  of  impossible  relying  Statistical has  the  paper.  three sections the  to  to  but  up  considered decided  of frequent r e f e r e n c e i n these  Study"  information  will  Canadian  to i n t h i s  equities.  The  table  r e a s o n , i t was  d a t a t o show  1966.  particular  Contracts i n response  this  sections  I f the  statistics  questionnaires  t h e r e are  mutual  to source  s u b m i t t e d t o The  referred  "York  a  figures  f o o t n o t e d as  For  the  by  Committee.  cases, the  material  to the  on  a similiar  documents  statistical  from  Committee.  stated  Investment  preliminary fund  of t h i s  that  been  In such  from  Mutual  not  were p r e p a r e d  collected  i s not  report  tables  other s t a t i s t i c a l  information.  on  staff  assumed  published  prepared  the  information  There  these  information  i t c a n be  the  text  from  industry  source  in  previously,  which  f o r the  end  also  relied  of  1966.* /  upon  2  2 G. R. C o n w a y , The S u p p l y o f , a n d Demand Equities, (Toronto: The T o r o n t o S t o c k September 1968), "Conspectus".  f o r Canadian Exchange,  13  Adhering added  to comparable  to the c l a r i t y  statistical  of these  i n f o r m a t i o n has  sections.  CHAPTER  CANADIAN  In  FINANCIAL  this  importance  INTERMEDIARIES  c h a p t e r we w i l l  of a capital  intermediaries. the  growth  II  As a d i r e c t  and t h e r o l e consequence  of Canadian  intermediaries.  Some i n t e r m e d i a r i e s  others.  topic  the  On t h i s  leadership  position  we w i l l held  MARKET  be c o n c e r n e d w i t h t h e  market  and d e v e l o p m e n t  AND THE C A P I T A L  of financial  we w i l l  observe  financial have  grown  be i n t e r e s t e d  by t h e C a n a d i a n  faster  than  i n confirming mutual  fund  indus t r y . As market of  a start,  and f i n a n c i a l  economic  will  their  will  intermediaries  followed  The t e r m  "capital  b y an e x p l a n a t i o n  of the f i n a n c i a l role  will  intermediaries  i n the capital  encompass  resources  Finally,  market.  the  growth  in  relation  the history,  among C a n a d i a n  there  will  attained to other  market" of the  i n terms  Secondly, development  growth  financial  be a c o n c i s e  there process  and c o n c e n t r a t i o n  intermediaries.  discussion concerning  by t h e C a n a d i a n major  of the capital  i n the process  be a r e v i e w o f t h e i n s t i t u t i o n a l  which of  see the value  development.  be d e f i n e d ,  functions of  we w i l l  Canadian  mutual  fund  financial  industry  intermediaries.  15  I.  THE C A P I T A L MARKET AND ROLE OF F I N A N C I A L I N T E R M E D I A R I E S  Canada has e x p e r i e n c e d last  century  advances,  of  a capital  this  market  this  country  has been  the  educational  that  have  market  processes,  greater mobility,  Without  i t would  have  at such  the existence  the existence  been  made  impossible f o r  a remarkable  of the c a p i t a l  intermediaries operating  largely  i n the  and i n s t i t u t i o n a l m a c h i n e r y t o  to develop  financial  change  growth, t e c h n o l o g i c a l  and c o m p u t e r i z a t i o n .  streamline  It  due t o e c o n o m i c  new  automation  a tremendous  pace.  market and  i n this  p o s s i b l e the process  market  of  capital  formation. On t h e s u b j e c t intermediaries, a primitive were  But  in a  goods  modern  the s p e c i a l i z a t i o n  for  the t r a n s f e r of goods.  virtually  Capital  impossible  that i n capital  barter  goods He  economy  also  some  occurred. states  instruments  t o money a r e e s s e n t i a l  and t h e d i v i s i o n savings  financial  of  through  f o r consumer  and c l a i m s  for  be  and u s e r s  capitalistic  money  and  states  was no f i n a n c i n g p r o b l e m .  representing  capital  E. D o u g a l l ,  t h e same, a l t h o u g h ,  of capital  there  that  Herbert  markets  s o c i e t y the savers  largely  exchange  of capital  to those  formation, without  of labour  who  and  invest i n  he s u g g e s t s ,  would  money a n d a m a r k e t .  16  Furthermore, to  channel  the  some u n i t s these  extensive  money v a l u e  i n the  savings.  of  these  of  capital  institutional  economy He  markets  of to  that  savings those  concludes  that  largely  machinery  is  generated  who  have  by  use  i t i s the  necessary  for  existence  makes p o s s i b l e t h e  process  3 formation.  Dougall considered  also  as  markets".  attempts  a reasonable  To  quote  to  clarify  definition  what of  should  the  be  "capital  him,  " T h e r e i s no s u c h t h i n g as a market f o r c a p i t a l , t h a t i s , the economic c a p i t a l goods t h e m s e l v e s . But t h e r e i s a m a r k e t , or r a t h e r a group of m a r k e t s , f o r the d o l l a r i n s t r u m e n t s t h a t r e p r e s e n t e i t h e r title t o , o r c l a i m s t o , c a p i t a l , and t o t h e o t h e r r e s o u r c e s o w n e d by g o v e r n m e n t , b u s i n e s s , a n d individuals. Therefore, mean t h e  the  "capital  markets  are  gathered  and  individuals,  outstanding The in  the  and  played  transfer  savers  the  funds  intermediate  made a v a i l a b l e and  should  where  be  and  taken  long-term  to b u s i n e s s e s ,  instruments  to  that  are  funds  governments already  are t r a n s f e r r e d .  role  the  where  markets"  by  process  i n our provided  the  financial  i s that  s o c i e t y and by  these  of  those  savers.  institutions  middlemen who  wish In  between to  borrow  i t s role  as  H e r b e r t E. D o u g a l l , C a p i t a l M a r k e t s a n d Institutions, P r e n t i c e - H a l l , E n g l e w o o d C l i f f s , New J e r s e y , 1965 , p . 3 . Ibid.  p.4.  17  intermediary from  savers  assets They  the  financial  to borrowers  s a v e r s want  accomplish  and  this  own  i n s t r u m e n t s such  for  the  to  as  and  financial  in  maturity, in yield  can  attract  funds  the  same t i m e  respect to  s h o u l d be  of  offer  clarified,  such  the  finance  other  the  stock exchanges,  the  necessary  the  debt  and  savers.  funds  issued  by  their certificates  received  ultimate  differ the  variety  in  borrowers.  liquidity,  institutions of  lenders .  considerable that  however,  At  flexibility  will  as  that  a direct  satisfy  and  not  companies,  link  investment  In  groups,  ultimate addition,  dealers provide  for marketing  i n s t r u m e n t s of  every  middleman  Some f i n a n c i a l  intermediaries.  facilities equity  issuing  borrowers.  and  and  require.  corporate stock, corporate  of borrowing  borrowers  borrowers  the  in risk,  intermediary stands  sales  as  a wide  between as  use  forth  and  can  terms  a l l types  financial  and  funds  financial  s h a r e s , or  assets that  from  they  the  borrowers  deposits,  so  offering  It  funds  channeIs  t r a n s f o r m a t i o n by  By  almost  providing  i n s t r u m e n t s such  bonds, mortgages  with  by  the  l e n d e r s to buy,  purchase  institution  and  trading  borrowers.  18 II.  Now the to  that  capital  of  of  The  has  the  i t is  play  in  possible  history,  intermediaries  a  Canadian  growth,  i n Canada  and  from  great  number  fact,  of  some  our  investment  unions,  sales  unknown  practical The  the  intermediaries indicates  the  may  nineteenth  different the  present  financial  and turn  trusteed  the  century, did  not  century.  institutions,  consumer of  types  pension  loan  century  of  the  In such  funds,  companies or  types  observed  in Figure  decades  i n which  the  intermediaries  I t i s shown  types  different  be  financial  existence. nineteen  the  intermediaries  cred  were  without  importance. appearance  Canadian  of  companies,  finance at  of  until  major  Intermediaries  financial  a creation  appearance  groups  of  Financial  make t h e i r  still  intermediaries  stated,  analysis  Canadian  essentially  the  been  financial  numerous  although  as  financial  1968.  History  are  role  a brief  development to  the  market  provide  1957  THE DEVELOPMENT OF C A N A D I A N FINANCIAL INTERMEDIARIES  of  on  financial  distinguished,  nineteenth  century.  made t h e i r  first  only The  figure  types  or  i n the  twelve twentieth  of  into  that  originated  remaining  financial  which  came  intermediaries seven  appearance  1,  different first  this  of  in  of  the  financial the  intermediaries century.  FIGURE 1 A P P E A R A N C E OF S E L E C T E D IN 181Q -19  CANADA,  FINANCIAL BY  INSTITUTIONS  DECADES  1 8 2 0 183Q 1 8 4 0 1 8 5 0 1 8 6 0 1 8 7 0 1 8 8 0 1 8 9 0 1 9 0 0 1 9 1 0 1 9 2 0 1 9 3 0 1 9 4 0 1 9 5 0 1 9 6 0 -29 -39 -49 -59 -69 -79 -89 -99 -09 -19 -29 -39 -49 -59  Ranks, and D e p o s i t Institutions : Bank o f C a n a d a C h a r t e r e d Banks Quebec S a v i n g s Banks C r e d i t Unions T r u s t Companies Mortgage Loan Companies L i f e Insurance Pensions:  and  Life Insurance Trusteed Pension F i r e § CasualtyCompanies  Funds  Other F i n a n c i a l Institutions Sales Finance Consumer Loan M u t u a l Funds C l o s e d - E n d Funds Investment Dealers CMHC Farm Loan B o a r d Industrial Development Bank Industrial Estates Alberta Municipal Financial Corporation  X  20  Growth  of  In  Financial Intermediaries  order  to  observe  intermediaries  have  we  the  can  look  features  of  1957. of  at the  Table  the  1957  nine  major  The  figures rates  institutions as  to  the as  how  these at had  end  expanded Growth  measured period, these year  by  in this  of  for  growth the  this  for  the  has  by  trust  way  of  of  been  this  can that  companies  comparison  and the  of  by  compare  83%  economy  of of  their  G.N.P. assets  109%. financial during  been uneven. in size  during  rates  of  looking  outstanding Canadian  credit  or  indication  the  assets  1968,  assets  most  two  that  their  i n the  achieved  with  major  s e e n by  the  i s to  nine  increased  be  been  the  from  show.'  One  has  of  or  assets  financial  period.  $26.4 b i l l i o n end  in  clearly  nine  basis  most p a r t  differences and  growth  the  the  value  for  i s apparent  assets  were By  organizations period,  year  institutions on  table  these  eleven  $73.7 b i l l i o n  the  have  significant It  presented  rates  since  intermediaries  1957. to  institutions  financial  Compared  of  essential quantitative  Canadian  intermediaries  the  another  growth  these  a whole.  one  aggregate  during  of  i n the  to  the  outstanding  growth  financial  in relation  financial  I , shows  1968.  impressive  trends  Canada  Canadian  performed  major  to  how  in  unions  institutions,  the  1957  the  at  growth  mutual  eleven were  Table  I.  in  funds  followed  respectively.  l a r g e s t Canadian  1968  While a l l  expansion  again  -  financial  By  TABLE I GROWTH I N TOTAL A S S E T S OF MAJOR CANADIAN F I N A N C I A L 1957 t o 1 9 6 8 ($  millions) PER CENT GROWTH  ASSETS  1957  C a n a d i a n M u t u a l Funds C h a r t e r e d Banks C r e d i t Unions and C a i s s e s P o p u l a i r e s C l o s e d - E n d Investment Companies L i f e Insurance Companies (Canadian only) M o r t g a g e Loan Companies S a l e s F i n a n c e and Consumer Loan Companies T r u s t Companies T r u s t e e d P e n s i o n Funds  220 12,417 852 240  Total G.N.P. ( M a r k e t P r i c e s ) T o t a l a s p e r c e n t o f G.N.P.  26,441 31,909 83%  (1) (2) (3) (4)  7,104 690 1 ,684 774 2 ,460  INTERMEDIARIES, ( )  1968  2 , 743 29,321 4,278 656  1957  - 68  1,146 ( 2 ) 136 402 173  PER  CENT OF TOTAL ASSETS  INCREASE (DECREASE)  1957  1968  .8 47 .0 3.3 .9  3 . 7 39 . 8 5 .8 .9  2.9 (7.2) 2 .5 -  14,850 ( 3 ) 2,977  109 331  26 . 8 2 .6  20 . 2 4.0  (6.6) 1 .4  4,927 4,972 8,960 ( 4 )  192 542 264  6 .4 2 .9 9. 3  6.7 6 .7 12.2  .3 3.8 2.9  100 .0%  10 0.0%  73,684 67,368 109%  A s s e t s a r e a t book v a l u e s . P e r c e n t a g e g r o w t h a t m a r k e t v a l u e s (1957 - $305 m i l l i o n , 1 9 6 8 - $3,410 m i l l i o n ) 1 9 6 8 f i g u r e e s t i m a t e d on b a s i s o f 1 5 % g r o w t h 1 9 6 6 t o 1 9 6 7 a n d 1 9 6 7 t o 1 9 6 8 . 1968 f i g u r e e s t i m a t e d on b a s i s o f 1 1 % g r o w t h 1966 t o 1 9 6 7 .  - 1018%.  SOURCE:-Dominion Bureau o f S t a t i s t i c s , B u s i n e s s F i n a n c i a l S t a t i s t i c s Balance S h e e t s , S e l e c t e d F i n a n c i a l I n s t i t u t i o n s , V a r i o u s I s s u e s 1967 a n d 1968, O t t a w a : Queen's P r i n t e r , C a t a l o g u e No. 6 1 - 0 0 6 . - D o m i n i o n Bureau o f S t a t i s t i c s , T r u s t e e d P e n s i o n P l a n s F i n a n c i a l S t a t i s t i c s , 1967, Ottawa: Q u e e n ' s P r i n t e r , C a t a l o g u e No. 7 4 - 2 0 1 , N o v e m b e r 1 9 6 8 . -Report o f t h e Superintendent o f Insurance o f Canada, v a r i o u s y e a r l y i s s u e s .  22  institutions, companies, If  the chartered  recorded the smallest  individual  enlargement  of  percentage gains  of  this  become two  selected even  columns  group  more  i n 1968.  Among  period. trust  completes  funds  of  addition,  we  institutions 1957  t o 1968.  limited  now have  know  pension funds.  study of the  of showing among  as c l e a r l y  these intermediaries  t h e same  favoured the  and t r u s t e e d  of resources  as w e l l  companies  during  grown more  quite  Canadian  describing  of the nine rapidly  growth  financial the  market. major  financial  short  the h i s t o r y ,  i n the c a p i t a l  which  capital  of Canadian  A l t h o u g h t h e r e v i e w was  concentration  intermediaries  financial  insurance  and development  d i d serve the purpose  and  banks  SUMMARY  a very  and t h e g r o w t h  intermediaries. it  life  last  4 7 . 0 % i n 1957 t o  re-distribution  III.  market  from  the non-monetary  mutual  results  the chartered  share of aggregate assets  companies,  This  fell  the Canadian  The b i g g e s t  the  assets  A glimpse at the  I , shows t h a t  39.8%  i n assets.  to the t o t a l  of i n s t i t u t i o n s ,  of aggregate assets  a 6.6%  growth  insurance  i s o b s e r v e d on t h e b a s i s  interesting.  of Table  intermediaries,  and l i f e  made i n r e l a t i o n  share  lost  banks  role In  financial  than others  from  23  On  a basis  of growth  mutual  funds,  trust  showed  remarkable  and r e - d i s t r i b u t i o n companies,  gains  financial  institutions,  insurance  companies,  Of  particular  expansion when we recent  market, in  Canada's  suffered  that  this  a d d i t i o n to the vast  give  some  reasons  the near  insight  array  into  funds  two l a r g e s t banks  mutual  industry  for i t s rapid  future.  pension  and  i s the tremendous  of this  the  life  considerably.  a t t a i n e d by C a n a d i a n  recognize  and t r u s t e e d  the chartered  interest  A c l o s e r examination should  while  of assets  funds, is a  asset especially  relatively  of f i n a n c i a l  particular i t s role growth  intermediaries.  financial i n the  institution  capital  and growth p o t e n t i a l  CHAPTER I I I  C A N A D I A N MUTUAL  FUNDS AS F I N A N C I A L  We now r e a l i z e industry major is  mutual  funds  they  i n size,  financial  provide  o f growth  i n f o r m a t i o n on t h e s e  of  chapter.  this  After of  mutual  it  will  factors  funds  t h a t have  factors.  industry which  Later  The f i r s t  mutual  fund  IV,  we w i l l  go o n e s t e p  the  factors  which  package  sold  as f i n a n c i a l  created public  by mutual  funds.  Providing  the purpose  predominant  of the mutual review  fund  two o f  product the  i s t h e means b y  i s marketed.  further  or services  intermediaries,  of the  we w i l l  The s e c o n d  have  understanding  i s the attractive  product  they  represents  t h e growth  i n the chapter  other  to the public.  a fair  t o e x a m i n e some  has f o r s a l e .  the  role  assisted  from  what b e n e f i t s  topics  has gained  and t h e i r  be p o s s i b l e  industry. these  the reader  differ  are sold  concise  to other  a r e o r g a n i z e d , how  relationships  institutions,  a n d how t h e y  fund  What we do n o t know  how t h e y what  mutual  relative  a r e , how t h e y  institutions,  other  the Canadian  institutions.  have grown  financial to  i n terms  financial  what  they  stands  where  INTERMEDIARIES  In  by examining interest  Chapter  some o f  i n the investment  25  I.  In  MUTUAL FUNDS AS  short,  mutual  company.  An  that  i t s own  sells  invests the  the  function  our  investment  of  and  The  funds  justification  financial  f o r an  i s that  savings, to  managed  portfolio  of  securities.  through  which  great  securities to  individual  influence markets  funnel savings  secondary  markets  investment.  two  are  k n o w n as  and  non-leveraged) Mutual  companies  are  institutions Their  percentage  company  professionally  a c q u i r e an  indirect  companies behaviour  have and  investment  investment  companies.  the  non-leveraged  unique no  position  significant  total  they  assets.  had the been  in  the  capital  companies (leveraged  closed-end  among  financial  amount  current l i a b i l i t i e s  media  on  has  t o f i n a n c e new  of  in  investors,  Their role  o p e r a t i o n s and of  principal  a  closed-end  are  institutions,  S e r v i n g as  and  of having  business  than  types  and  and  is their  outstanding securities  funds  i n the  only debts  regular small  mutual  funds  investor  rather  The  these  in general. into  financial  obtain a  investors  stocks, upon  organization  public  i t enables  of  a  the  investment  a pooling  and  investment  existance.  community  i n bonds  to  in securities  through  stake  of  is a financial  Unlike other  for  COMPANIES  a form  or u n i t s  investing  reason  are  company  shares  proceeds.  activity  INVESTMENT  of  liabilities.  incident  constitute  a  to relatively  26 Thus,  there  almost  i s a very  the entire  right-hand  is  represented  as  the use o f a s s e t s  these of  It impose  in their  no  significant  liabilities  little  need  investment  assume  obvious  considerable  investment  companies  the  types  The  only  the  prospectus  charter  such  of investments selection  however,  investments organized  they  that  open-end  exchanges  which  One  on t h e  t o be h i g h l y  the  unsophisticated investors prefer  names this  they also It  regard  adds  sales  has been  companies records  recognize  to  and have  and t o s t a y  evolves  i n ;  from  corporate naturally  appeal.  the trend  select  tendency  confidence  normally  their  The  that  for this  into  corporate  marketable. fact  reason  portfolios.  listed  are considered  reason,  in  written  restrict  issues  i s ,  able  for their  company.  funds  popular  are  latitude  or i n the  of a closed-end  t o t h e more  It  to  For t h i s  are those  fund  expenses  ability  risk.  select  limitations  and b y - l a w s  operating  income.  considerable  of a mutual  i s concerned,  organizations  financial  have  So f a r  for stability  on t h e i r  i n investment  that  sheet  portfolios .  limitation  fluctuations  therefore,  finds,  stock.  i s possible to generalize that  tolerate  to  very  capital;  of the balance  capital  to support  have  of equity  side  by o u t s t a n d i n g  companies  principle  large margin  stock almost  to the p r e v a i l i n g  f o r conventional issues fully  level  with  good  investment dividend  invested with  of stock  prices.  little  27 Such the  companies composition  adverse is  tend  t h a t may  area  result  because  i f their  of the  judgement  of concentration i n this  the investment  some  company known  c o n f u s i o n may  arise  mutual  funds  making  the d i s t i n c t i o n .  investment between terms sell  are  "closed-end"  their  that  investment  companies  The m a i n  distinction  t o t h e manner  managed  management  as a m u t u a l  i n which  service  more  detail  companies  firms,  Although their assets  own  separate  per share  types  when  units  issued.  taking  assets  companies  types  estimating the value Portfolio  the market  of the investment  of closed-  or commercial  brokerage banks.  companies of  have  portfolio  c o n s i d e r a t i o n i n both of their  shares  assets per share  value  used  be d i s c u s s e d  Directors  t h e amount  i s an i m p o r t a n t  practice  arrangement  of investment  features,  a  or partners of  houses,  companies  officers  firm,  and w i l l  section.  banking  and  another  are often o f f i c e r s  both  These  f o r investing.  directors  from  in a later  investment  is  the organizations  i s i n c o n t r a s t t o t h e management  in  among  feature i s that closed-end  by t h e i r  most o f t h e open-end  between  i t i s worthwhile  companies.  t o o b t a i n money  by  fund.  already mentioned,  and "open-end"  distinguishing  thesis i s  as t o t h e d i f f e r e n c e  a s was  securities  usually  without  and o t h e r  companies,  refer  Another  by  portfolios  changes- i n  wrong.  with  end  to avoid major  of t h e i r  effects  The m a i n  As  also  i s calculated  of the investments  company,  less  or  and  other  the l i a b i l i t i e s ,  28  and  dividing  shares  the  resultant figure  outstanding.  company's  net  For  assets  a certain  and  the  net  asset  value  per  the  net  asset  value  v a r i e s as  the  portfolio  are  example,  million  in  there  on  the  If  prices rise,  stock  normally  closely  asset  As  companies  with  investment a  net  rises.  investment  one  share  changes  the  the  net  companies  share  net  values  the  r e p r e s e n t a t i v e c r o s s - s e c t i o n of  of  Naturally,  the  may  the  market stock  outstanding,  securities for  also  value  rule,  and  $10  p r i c e s drop,  a general  i n stock  worth  i s $10.  value  asset  asset  are  day  of  investment  shares  that  per  number  i f an  I f stock  value  the  date  million  change.  example,  by  per  drop.  share  movement  coincide prices  market shares  of  fairly  because  indicies  contain  a v a i l a b l e to  investors. Open-End  Investment  Mutual to and at  sell to any  option. be and  funds  re-purchase time A  and  by  fund  The  (Mutual  organizations new  or  i n any  precise  Investment  1969 .  are  continuously  proposed  mutual  Companies  shares  redeem  definition  Contracts  at of  that  shares  the  the  or  a mutual on  in i t ' s report t o be  the  right  public  units  shareholder's  Committee  i n d u s t r y expected  have  u n i t s to  these  amount  Canadian  or  Funds)  fund  will  Mutual on  the  published  Funds Canadian  in  December,  29 The  proposed  suggestion fund  that  report  definition referred  definition  is herein  reproduced  i n t e r e s t e d readers  r e f e r to  for a detailed presentation was  to  developed  i n the  and  to  of  follow-up  with the  mutual  how on  the  the the  exceptions  definition.  "We recommend: t h a t the term 'mutual fund' should be d e f i n e d , s u b j e c t t o t h e e x c e p t i o n s recommended i n t h e n e x t s e c t i o n , t o i n c l u d e any o r g a n i z a t i o n w h i c h i s s u e s , o f f e r s f o r i s s u a n c e , or has outstanding instruments ( w h e t h e r c a l l e d s h a r e s , u n i t s , o r by any o t h e r t e r m ) t h a t e n t i t l e t h e h o l d e r t o r e c e i v e on d e m a n d o r w i t h i n a s p e c i f i e d p e r i o d a f t e r d e m a n d , an amount c o m p u t e d by r e f e r e n c e t o t h e v a l u e o f a p r o p o r t i o n a t e i n t e r e s t i n the a s s e t s of the i s s u i n g organization. I f the r e d e m p t i o n p r i c e i s computed by r e f e r e n c e t o t h e v a l u e o f a p r o p o r t i o n a t e interest i n a s p e c i f i e d p o r t f o l i o o f a s s e t s s u c h as a s e p a r a t e fund or t r u s t a c c o u n t , t h a t p o r t f o l i o i s t r e a t e d under t h i s d e f i n i t i o n as t h e i s s u i n g o r g a n i z a t i o n and t h e r e f o r e as an e n t i t y w h i c h i s ( a g a i n s u b j e c t t o the e x c e p t i o n s i n the next s e c t i o n ) a mutual fund". 5  keep of  Further  to  i n mind  that  a mutual  from  other  open-market on  any  sale  fund  definition,  an  acquires  trading  i t i s important  i n v e s t o r who  distributing  Canadian  i s the  this  as  stock  them  holds  from  the  shares  or  mutual  fund  organizations. mutual  fund  exchange.  There  shares The  i s s u i n g company, t h r o u g h  to  are  market the  is not  for  privilege  units or no listed their of  redempt i o n . All plus  shares  are  sold  a,.certain percentage  at of  net  asset  asset  value  per- s h a r e  value.  The d e f i n i t i o n o f a - m u t u a l f u n d h a s b e e n e x t r a c t e d from a d r a f t copy of Chapter V of the unpublished r e p o r t o f The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d Investment Contracts.  30 The  premium  basically plus In  net asset  a small margin  range  of profit  falling  prices  price  with  sell  h i s shares,  price. mutual  price For is  of  of relating than  example,  fund  are published The price  offering  o f $10 p l u s  charge  of  funds'  to the o f f e r i n g  of the shares.  net asset  charge  price  by t h e  value  a company's  If  he must p a y t h e " a s k "  the a c q u i s i t i o n  The o f f e r i n g  value  8% o f X, o r  shares  i s complicated  $10 a n d t h e a c q u i s i t i o n  net asset  value  per  o f 8% i s l e v i e d  price  ( X ) i s made  the a c q u i s i t i o n  up o f charge  Calculation: = 10.00 = 10.00 =10.87  Net A s s e t V a l u e : P l u s 8% o f p u b l i c offering:  $10.00  Public  $10.87  Thus  offering:  the charge  .8 7  i s 8.7% o f n e t a s s e t  share  on t h e  .0800X.  X-.0800X .9200X X  increases.  receive the " b i d " p r i c e .  the net asset  suppose  price.  with the  invested  or units  in  I f t h e i n v e s t o r wants t o  of the public  securities  rather  offering the  he w i l l  Computation  practice  price  company.  falls  t h e sum o f t h e " b i d "  charge.  t o buy mutual  fund  charge  o f money  shares  i s approximately  the a c q u i s i t i o n  wishes  f o r the salesman  f o r the d i s t r i b u t i o n  acquisition  fund  t h e " l o a d " --  a " b i d " and " a s k " q u o t a t i o n .  plus  he  commission  as t h e amount  f o r mutual  newspapers  "ask"  this  i s called  o f 8% t o 9% o f t h e o f f e r i n g  percentage Most  value  representing a sales  a m a j o r i t y o f cases  the  in  above  value.  31  The mutual per  standard practice  fund  to repurchase  share, although  (usually  not  offered  by  Because a mutual  distribution programme value  of  growth  of  to  of  privilege  the  features  f o r the sales  shrinking  s i m p l y , the  depends  of  the  asset  asset  upon:  any  increase  Canada, Royal  65%  of  and  69%  35% new  i n the market  a study  of  11  Commission  on  Banking  the  ending  1967,  about  Put  fund  discount  i n a continuous from  value  (2)  decade funds  fund.  asset  f o r the  i t is essential  i s f o r the  the excess of shares issued over shares r e d e e m e d , s o l d t o e x i s t i n g a n d new s h a r e h o l d e r s ;  the  that  a small  i s one  redemptions  individual  at net  i s charged  redemption  shares  (1)  In by  cases  t o engage  to prevent  an  1%)  fund  company  the mutual  i t s shares  i n a few  more t h a n  redemption.  f o r redeeming  increase  i n 1961 from sales  to the  mutual  i n net  resulted  capital  of the  funds  was  and  asset values from  fund  in total  an  inflow  shares net  portfolio.  performed  F i n a n c e , and  appreciation.^  of mutual  growth  value  in of  From  showed  the new 1961  contributed  assets.^  R e p o r t o f t h e R o y a l C o m m i s s i o n on B a n k i n g a n d F i n a n c e , Ottawa: Queen's P r i n t e r and c o n t r o l l e r o f S t a t i o n a r y , 1964, p.255. P e r c e n t a g e b a s e d on s t a t i s t i c a l i n f o r m a t i o n c o l l e c t e d b y The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d Investment Contracts.  32 Closed-End  Investment  Prior investment United all a  the  were  This  i t s common s t o c k  offered may  be  number  of  at  time  existing the  stock  demand  For  the  this  sold  at  or  at  on  the  value  may  or  no  closed-end  shares  market  during  a rising  slightly  the  but  a declining market;  more v o l a t i l e  trade  the  number  on  There  a  only for  from sale  supply shares  the  the  at  i n the  be  price  at  market.  purchased  value per  and  per  share  or  share depending  t r a n s a c t i o n time.  stock  net  asset  market  making  the  therefore,  on  may  value  from  thus than  fund  asset  the  discounts  not  the  sells  company.  stock  bearing  net  to  and  "over-the-counter"  shares  asset  the  i s s e t by  may  c o n d i t i o n s at  Normally, widen  above  I t has,  purchased  the  direct  company  equal  their  price  closed-end  "premium"  be  on  a " d i s c o u n t " below  a  during  offerings,  U n l i k e mutual  has  reason,  offering.  of  closed-end  i n Canada  investment  offering  exchanges  1930's  outstanding  Shares  conditions.  the  formation  t h e r e f o r e share  asset  which  of  stock  basis.  of  i n one  shareholders  market;  net  the  of  quite popular  type  shares  additional  continual  to  depression  companies  States.**  fixed  on  to  Companies  stock  and  value  tend  to  narrow  closed-end  shares  market  in general.  F o r an a c c o u n t o f t h e h i s t o r y a n d d e v e l o p m e n t o f t h e i n v e s t m e n t c o m p a n y i n d u s t r y , s e e B u i l o c k , H u g h , The S t o r y of Investment Companies, Columbia U n i v e r s i t y P r e s s , New Y o r k , 1960.  33 The  volatility  associated with  the  c o m p a n i e s , h o w e v e r , u s u a l l y comes policy This in  of  factor  as  shares Many  to  1930,  more  significant  the  than  investment  amounts,  depression,  l o s s e s which  investment  unimportant The of  i n the  effect  Canadian  were  not,  true  i n the  substance fund now  companies  United  of  the  economic  closed-end  generally speaking, United  to  the  States.  fact  States. investment  In  larger  Canada,  companies  so  at  i n Canada  the  may  that  comparatively  for  holders  securities  in part  of  to  than  the  i n the of  was  give  companies  assets  end  the;ir i n v e s t o r s  d i s a s t e r o u s as  investment  This  since.  company  This  aggregate  such general.  large  depression  as  of  as  leverage.  that, proportionate  i n d u s t r y , closed-end considerably  of  ever  investment  in  securities  have been  States  "leverage".  particularly  l o s s e s s u f f e r e d by were  their  interested  prices in  f o r purposes  in  closed-end  value  c l a s s e s of  the  of  obtain  companies  stock  accentuated  closed-end  investors  market  factor the  to  companies,  senior  of  a result  by  closed-end  cause  issued  as  i n order  considered of  can  fluctuate  closed-end  prior  be  shares  leverage to  s e n i o r debt  should  purchasing  much  in  issuing  shares  mutual  are United  closed-end  1967  were  about  28.8%  roughly 9  $768 m i l l i o n ; total  net  being  sold  an  assets to  amount of  equal  Canadian  Canadians  to  organized  at. t h a t  mutual  of  the  funds  date.  9 Dominion Bureau of S t a t i s t i c s , Business Financial S t a t i s t i c s Balance Sheets, S e l e c t e d F i n a n c i a l Institutions, F o u r t h Q u a r t e r 1967., Ottawa: Q u e e n ' s P r i n t e r , May 1968 , T a b l e 5A, p . 1 0 . A s s e t s are g i v e n at market v a l u e .  34  The  corresponding figure  end  of September Now  mutual is the  that  funds  possible  mutual  some  fund  of confusion.  industry  7.8%.  the d i s t i n c t i o n  to discuss  appreciation  the  1 9 6 8 was  and c l o s e d - e n d  Canadian  danger  i n the United States at the  has been  investment  review  growth, mutual  will  classification funds.  covering other  sections  companies, i t  without  risking  of the Canadian  those  the  items  mutual  which  an fund  best describe  Specifically,  the  describe the organization, and s e r v i c e  In a d d i t i o n ,  the r e l a t i o n s h i p  financial  between  To p r o v i d e t h e r e a d e r w i t h  operations of the industry.  following  made  of the c h a r a c t e r i s t i c s of  industry  o f the scope  we w i l l  1 0  there w i l l  between  institutions  aspect be  mutual  and mutual  of  Canadian  sections  funds fund  and  channels  of  distribution.  .. I I . O R G A N I Z A T I O N  The legal  differences  form  OF C A N A D I A N MUTUAL  among m u t u a l  of organization.  incorporated  funds  In Canada,  FUNDS  extend funds  to may  their be  or unincorporated.  P e r c e n t a g e f i g u r e p r o v i d e d b y The I n v e s t m e n t Company I n s t i t u t e , New Y o r k , N.Y., 1 0 0 0 6 , i n a l e t t e r a d d r e s s e d t o The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d I n v e s t m e n t Contracts.  35 Incorporated a  legal  for  identity  take  under  trust  which  are  spite  fund  divisional  that  to  provide  rewards  of a mutual i n some  simi1iarities  funds;  i s so because  companies.  characteristics,  the operation  a l l mutual  establish  funds  trust  the general  trusteed  of the necessity  the promoters  profits  and l o s s e s  i s passed  through  to mutual  institutions,  mainly that  which  companies  through  promise  obtain  may  receive  on t h e f u n d s fund  shareholders  rates  securities  assets  required  to public  include  the chartered  of return.  issued  raise  the benefit  the fixed  return  money  promoters  through  ownership  institution.  of earnings  i n excess  banks,  instruments  Their  primarily  profits  shareholders.  by t h e f i n a n c i a l  of the i n s t i t u t i o n  to provide  companies,  of f i n a n c i a l  returns  receive  portfolio  through  the issuance  fixed  securities  institutions,  and t r u s t  organizational  equity  Such  financial  are not passed  insurance  the  of parent  while  other  losses  Most  of  applying  unitholders. In  or  company  and o p e r a t i o n a l  a means w h e r e b y  portfolio or  This  by  funds  e n t e r p r i s e , has r e s u l t e d  of almost  incorporated.  their  that  establish  Unincorporated  the independent  operations  organizational  or  jurisdiction  and t h e t r u s t  the fact  are true  and f e d e r a l ,  patent.  distinction,  i s a business  important  chosen  forms;  indentures,  with  provincial  letters  two m a i n  of this  together  both  i n their  and r e c e i v i n g  funds  In  funds,  on  o f what i s  to the  holders  36  of  debt  instruments  procedure funds  obtain  their  benefits  administration the issuance  In  order  profits  that  f o r mutual from  rather  administration  may  of salary,  and i n v e s t m e n t  and t h e d i s t r i b u t i o n  units,  t o be  carried  ownership. and  investment  successors  organization  management  units  is  important  often  is called  that  to realize  that  these  the Canadian  a mutual  mutual  i n addition  receipt  fund  of the or  i n which  the  performs  equity the  administration  t o as t h e  distributes company";  "management shares i t  two c o m p a n i e s a r e  to the fact  i s organized  b u t t o be  organizations.  just  described  industry,  of a promotional  fund  enterprise other  organizational  t h e same.  advantage the  hold  fund.  of  of i t s shares firms  profits  cause  management  the " d i s t r i b u t i o n  The m e t h o d o f o r g a n i z a t i o n in  the form  is referred  company" and t h e o r g a n i z a t i o n or  that  to  and  of the mutual  on by s e p a r a t e  or t h e i r  The  losses  compensation  the organizers  fund,  organizers  or  organizers  management,  take  mutual  the  profits  fund  or units  benefits  than  of mutual  two s o u r c e s :  and i n v e s t m e n t  of shares such  to pass  This  shareholders.  is traditional  on  the  fund  expenses.  i n the context  of the necessity  to mutual  It  for  i s not possible  because  through  and t o pay o t h e r  that  reward.  and has  i s universal another  i t facilitates In s e v e r a l  n o t as a n i n d e p e n d e n t  carried  on i n c o n j u n c t i o n  cases, commercial  with  37 In  such  their and by  c a s e s , the  full-time  i t would means  engaged they  of on  may  be  responsible  to  the  o p e r a t i o n s of  troublesome  a salary.  basis  responsible  investment  objectives  to  variety  investors.  than  allocation  distribution and is  of  the  functions  f o r these  reasons  Canadian  mutual  would  a mutual  fund  are  , mutua1 have  ^ j 11 fund.  been  such  an  and  and A  few  mutual  organized in this arrangement  funds  arrangement and difficulty  other situations. of these  is universal although  by  funds  i n the A  It functions  in  the  presumably the  employees  manner.  i n the  with  appeal  other  organized i n which  performed  are  fund operations  considerable  delegation  industry, be  persons  mutual  Any  fund,  compensated  organized to  cause  o f management)  could  internalized  that  fund  devote  a d m i n s t r a t i o n , management  inconvenience in this  (externalization  of  of  these  for several  not  t o be  i n mutual  different a wide  do  the mutual  f o r them  Even where  a full-time  be  persons  functions  of  the  United States  good  example  United States i s  Massachusetts  12 Investors  Trust  ("MIT").  **  F o r t h e d e f i n i t i o n o f an i n t e r n a l l y m a n a g e d f u n d see: A Study of Mutual Funds, prepared f o r the S e c u r i t i e s and E x c h a n g e C o m m i s s i o n by t h e W h a r t o n S c h o o l o f F i n a n c e and Commerce, U n i o n C a l e n d a r N o . 9 5 5 , A u g u s t 28, 1962. C h a p t e r I I , p.37.  12  The l a r g e s t i n t e r n a l l y m a n a g e d m u t u a l f u n d i n t h e U n i t e d S t a t e s , M a s s a c h u s s e t t s I n v e s t o r s T r u s t , had a s s e t s o f a p p r o x i m a t e l y $2.4 b i l l i o n a t t h e e n d o f 1968. For a d i s c u s s i o n of the o r g a n i z a t i o n of t h i s m u t u a l f u n d , see t h e R e p o r t o f t h e S e c u r i t i e s and E x c h a n g e C o m m i s s i o n on t h e P u b l i c P o l i c y Implications of I n v e s t m e n t Company G r o w t h , House R e p o r t 2337, 8 9 t h C o n g . 2 n d s e s s . , 1966 , p p . 49 a n d 105.  38  If with  considered i n the context of their  other financial  differences created  exist  as m i n o r  intermediaries activities. which  will  others  among  mutual  sections  funds.  from  engaged parts  i n other  by o r g a n i z a t i o n s  V.  of these  financial  engaged  different  complexes  There  i n the o p e r a t i o n o f mutual  appreciation  are considered i n the next  are yet  exclusively funds.  arrangements  an u n d e r s t a n d i n g o f t h e C a n a d i a n  They  Some f u n d s a r e  of financial  be d i s c u s s e d i n C h a p t e r  started  significant  of the operations of f i n a n c i a l  principally Others  principally  to  intermediaries,  relationship  mutual  or  An i s essential  fund  industry.  section.  III. MUTUAL FUND R E L A T I O N S H I P S TO OTHER F I N A N C I A L I N S T I T U T I O N S  There in  a r e many m u t u a l  conjunction with firms  the  of smaller  to and  be m a n a g e d  costly an  have  clients  u n l e s s the funds  inhouse  mutual  fund,  be c o m b i n e d  One  such  was  c r e a t e d by H a r r i s  for  the portion securities  who w i s h  their  basis.  investment  invested  fund,  savings  Administration management  are substantial.  s a v i n g s from  f o r investment  i i n h o u s e mutual  Several  i t a r e w a r d i n g way t o m e e t  make s u c h  can  in  found  on a d i s c r e t i o n a r y  o t h e r expenses  c r e a t e d t o be o p e r a t e d  other organizations.  brokerage needs  funds  a number  i n a single First  Through  of clients  portfolio'.  Harfund  Limited,  and P a r t n e r s L t d . t o p r o v i d e  of i t sc l i e n t s '  of United States  managed  accounts  corporations.  invested  39 In the  a l l c a s e s , the brokerage  management  mutual part  of  firm, for  fund  company  facility  the  fund of  may  include  the  brokerage  institutions  to  banks  were  fund  as  an  company.  who  identical  end  of  by  the  in  brokerage service  the  are not  to those  other  1968,  funds  actual  same d a t e ,  Banks  and  additional  followed  financial i n the  three  creation  Canadian  investments  that  distributing  an  The  attractive  to p a r t i c i p a t e  the  the  on  investors  able to arrange  At also  as  stimulated  participation.  mutual  or  i n mutual  banks.  companies  the  were  customers  public  At  as  firm.  c r e a t e or  chartered  the  have  both  a comparatively small  individuals  similar  firms  funds.  with  forms  although  investment  of mutual  their  often  clients,  Applications by  distribution  considers i t merely  i t s smaller  clients  acts  business operations carried  which  mutual  and  firm  are 20  associated  Canadian  investment trust  by  trust  funds  for  companies  service  regard  to  existing  e s t a b l i s h m e n t of  Canadian  clients. The  trend  financial years. firm,  towards  complexes Such  bank  or  has  complexes trust  fund  to offer  they  consist  each  concentrating  service .  the  an of  become w e l l differ  company  attractive a number on  of  recognized i n recent  i n approach  that  organizes a  service  to  financial  a different  from  type  a  brokerage  mutual  clients.  Basically,  organizations, of  financial  40 Invariably, which  may  that  form  they  be  separate  part  of  usually  operated  them.  A  has  been  IV.  was  States  growth  within  fund  two  of  financial  one  these  funds  combined  total  short  fund,  discussion, funds  p e r i o d of  Canadian  i n the  the  the  has  Investment first  United  By  one  1940  mentioned  Corporations  i n that year  that  time.  1920's.  International assets  of  arrangements  mutual  i n Canada were  Commonwealth  i s more  o r more  earlier  Canadian  being  organizations  STATISTICS  i n c o r p o r a t e d i n 1932; into  fund,  V.  i n an  mutual  mutual  complex but  Chapter  a reasonably  came  major  and  having  of  Limited,  approximately  million. The  swing  Canadian  into  not  assets  of mutual  at  investment  fund  industry did not,  a c c e l e r a t e d growth  Detailed figures  available,  aggregated figure  mutual  i t s p e r i o d of  mid-1950's. are  financial  made a p p a r e n t  L t d . , was  $7.5  other  d i s c u s s i o n of  oldest Canadian  above  the  one  in conjunction with  detailed  impressive  Fund  the  the  deferred until  occurred The  from  least  C A N A D I A N MUTUAL FUND GROWTH  It the  i n c l u d e at  but  funds  at  end  funds,  of was  end  qualified  approximately the  the  f o r the  $46  1961, $795  of  for sale  million.  inclusive million.  until  entire  1950  in  trust  the  period  total  The of  however,  net  Canada corresponding company  41 From  that  expand has  t i m e , a s s e t s have  at  a rapid  developed  mutual 1967,  fund  was  and  as  sale  and  the  for  sale  equities to  industry  has  increased.  end  total  Canadians  for  for  number o f newcomers  for public  by  demand  to  the  net  by  million;  the  investment  Canadian the v a l u e  i n U n i t e d States mutual  i n C a n a d a was total  By  assets of  investment  a p p r o x i m a t e l y $158  held  public  continued  as  aggregate  offered  rate  generally  net  i n C a n a d a was  of  funds  trust of  companies  shares  funds  a p p r o x i m a t e l y $104  a s s e t s of Canadian  the  qualified  million;  mutual  a p p r o x i m a t e l y $2,508  funds  qualified  million,  13 for  a grand The  rapid  total  number  of  figure  companies, mutual  in  At  the  qualified  million.  funds end  of  12  19  a correspondingly  1967,  t h e r e were  investment  funds an  By to  the  13 6, (  end  of  1968,  funds  subdivided into  three categories  offered  the  118  for sale  approximate  funds  United States mutual  funds.  increased the  was  shows  as m u t u a l  o r more p r o v i n c e s o f C a n a d a ; this  had  $2,770  of mutual  increase.  organizations one  of  and  subdivision by  87  number  20,  19  in  and  trust Canadian  qualified 97  respectively.  I t s h o u l d be n o t e d t h a t t h e s e f i g u r e s do n o t a g r e e w i t h p u b l i s h e d f i g u r e s c i r c u l a t e d by o t h e r i n f o r m a t i o n services. T h e s e f i g u r e s have b e e n p r e p a r e d by t h e s t a f f o f The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d I n v e s t m e n t C o n t r a c t s on t h e b a s i s o f s u b m i t t e d s t a t i s t i c a l m a t e r i a l and a c c o r d i n g t o t h e t e r m s o f the recommended d e f i n i t i o n o f a m u t u a l f u n d .  42  V.  B E N E F I T S A T T A C H E D TO MUTUAL  There benefits units for  of a mutual  making  income  with  Although  or c a p i t a l  gains,  that  the degree  level he  i s able  managing the  his  cited  investment large  investments. benefits  portfolios  or small  Mutual continual  investing, of  fund basis backed  t e c h n i c a l aids  have  their  backed  present  the investor  reason  or future other  in selecting  must be  consistent  t o assume, t h e  t h e manner by w h i c h he c a n d e v o t e t o  In l i g h t offered  i n favour items  of these  by mutual  funds are  of the mutual offered  problems,  fund  by t h e d i s t r i b u t o r s  a r e p r o f e s s i o n a l l y managed, that  c a n be p u r c h a s e d  diversified  i n either  quantities.  Professional  a  obtain  and t h e time  o f funds  the principal  he i s w i l l i n g  The p r i n c i p a l  managers  of shares or  are certainly  he d e s i r e s ,  as w o r k i n g  investor.  there  non-monetary  The i n v e s t m e n t  risk  to invest  non-monetary  often  and  of  of l i q u i d i t y  i s to  influence  suitable investment.  with  the purchase  fund.  an i n v e s t m e n t  considerations a  we 1 1 - p u b l i c i z e d  are several  associated  FUND OWNERSHIP  Management portfolios by p e o p l e  are supervised with  by competent t o market  research  analysis.  own s e c u r i t y a n a l y s t s  up b y a s e p a r a t e  experience  on i n  and t h e use Some  funds  but are normally  management  company.  43 As  well  are  as a c t i n g  also  trained  pertinent  study the  field  operating  communication enables  as s e c u r i t y a n a l y s t s  with  the fund  caliber  i n v e s t i g a t o r s able  information corporate  t o have  of corporate  t h e managers  through  to obtain  direct  officials.  a continuous  This and  intimate  management, i t s p r o b l e m s , and  of the i n d i v i d u a l s involved.  Diversification A non-specialized in  a carefully  made and  These  several  with  to  could  invest  his  success  stocks. capital  in  many  of  a sharp  only  o f governments  a n d common several  an i n d u s t r y . amount  purchase  solely  bonds  shares  within  i n a mutual  of  stocks;  thereby,  price  The  a few s t o c k s , and to  he o b t a i n s  cushioning  these amount  an i n t e r e s t  the effects  f l u c t u a t i o n o f an i n d i v i d u a l  of risk  investor  industries  capital  on w h a t h a p p e n s  fund  invests  of securities  encompass  a small  only  rests  reduction  the  investments  normally  However, by i n v e s t i n g a s i m i l i a r  of  This  group  preferred  companies  investor,  fund  and l o n g - t e r m  corporations,  and  to  diversified  up o f s h o r t  stock.  mutual  i s an o b v i o u s  i f the mutual  fund  security.  advantage i s properly  diversified. Liquidity  and M a r k e t a b i l i t y  Unlike the  value  influenced This  most  stocks  of mutual  fund  by t h e s u p p l y  i s the reason  and o t h e r shares  forms  of investment,  or u n i t s  o f a n d demand  why a n i n v e s t o r  are not  f o r them.  can s e l l  his.  44  mutual  fund  value.  fund  affected  factors  holds  sum b a s i s ,  the  by e q u i t y market  because  fund  the  mutual  may b e b o u g h t  companies  relatively may  mutual  small  also  funds  make  amounts  basis.  without  offer  a sales  two t y p e s  accumulation  or units  quarterly.  payment,  plan.  as i t w o u l d  sum p u r c h a s e .  plans  of  from  differs  mutual the h i s agreed-  of a l l dividends.  be u n d e r  i n t h e same  a regular  lump-  leve1-charge, voluntary  have  no s p e c i f i c  and  the investor  may  any  time  penalty.  without  shares  i s charged  These  This  and can a u t o m a t i c a l l y  f o r re-investment commission  Basically,  i n that i t enables  t o buy f r a c t i o n a l  accumulation  to  of plans:  shares  sales  or  charge.  fund  provide  Mutual  monthly  t h e r e g u l a r lump-sum p u r c h a s e  upon p e r i o d i c  lump-  i tpossible  from  investor  on a  be r e - i n v e s t e d a u t o m a t i c a l l y  value  Voluntary  manner  and  factors.  o r on an a c c u m u l a t i o n  net asset  The  supply  the s e c u r i t i e s  shares  distribution  Dividends at  net asset  of Investing  Mutual  invest  for their  a r e s u b j e c t t o such  Regularity  fund  a t any t i m e  Nevertheless, the net asset value i s  indirectly demand  shares  time  duration  discontinue the plan at  45 Prepaid plan is  has  a  or  Contractual  fixed duration does  investor  signs  a contract  will  invest  on  a regular  not  for  Penalty  from  i n which  for  the  early For  manner entire  payments  example,  month  for  calculated  as  twelve not  50%)  the  type  the  is  the be  mutual  of  deciding w h e n he  An to  the  I f the  arises  from  the planholder.  $25  per  commission entire  portion  of the  sales  The  is $1,500  commission first  planholder  the  does  commission  argument  stressed  i n favour  of  i s that  i t forces  individuals  i n d i v i d u a l may  paid-in  of  industry  his  r e a l i z e s the  previously  of  recovered.  cancel  money  commission  invest  sales  contract,  fund  of  contractual  levied against  arrangement  save.  sales  to  largest  installments.  cannot  the  agrees  years  The  complete  paid  made b y  that  amount  i s taken  a percentage  investment. (normally  investment  i f he  five  stating  for non-completion the  think  contractual  a m o u n t he  this  twice plan  would  before especially  lose  on  amounts.  Convenience Normally fund  shares  or  an  investor  units  of  commitment.  a s p e c i f i e d number  installments. the  type  investor  meet h i s  a pre-determined  basis  This  the  i f he  he  to  and  penalized  The  by  Plan.  makes  who  purchases  only  one  mutual  investment  46 choice and  regular  fund in  in his lifetime.  rather  which  easy him  financial than  the fund  of continuous  that  are real  mutual  fund  he i n v e s t s  prices,  and i n v e s t s  t h e same  the average the average  money  low  than  will  when p r i c e s  t h e chances  be p r o f i t a b l e .  this  technique  Variety  their  managed.  fractional  fund  at varying  amount  will  be  This  each  less  i s so because  when p r i c e s I f stock  funds  make  i t also performance  use o f  accumulation  on a r e g u l a r  are  prices  the longterm  to purchase  plans  a constant basis  and  shares.  Funds companies  complex".  policies  o r g a n i z e and manage  This  as a number o f m u t u a l  investment  relieves  providing  h i s investment  Mutual  the investor  of Mutual  "mutual  defined  that  through  Some m a n a g e m e n t a  over  amount o f s h a r e s  purchase  shares  dollar  are high.  upward  will  enable  t h e same  b u y more s h a r e s  improves  to  and  responsibilities.  of the prices.  t o move  dollar  shares  i n i s well  cost per share  continue  which  company  Averaging buys  his  mutual  to the investor  an i n v e s t o r  than  every  administrative  fund  the  It is relatively  If  time,  from  from  invests.  advantages  the mutual  Dollar-Cost  statements  a statement  t o buy and s e l l  These  He r e c e i v e s d i v i d e n d s  term  funds  is specifically having  b u t o n l y one i n v e s t m e n t  different manager.  47 As  e x p l a i n e d i n the  S.E.C.14 m u t u a l adviser  to  fund  to reach  investors  and  Public  a broader  to offer  several  funds  s h a r e h o l d e r s of  such  a complex have  other  funds  load,  no  sales  exchange and  the  charge.  however,  some  the 17  roughly at  fund  II.  companies  The  The  indication  Table  five funds 78%  December  mutual  a mutual  fund  different  the  of  potential  investment  objectives.  fund belonging  option complex  fund  the o p p o r t u n i t y  to  of switching  to  at  sales  a reduced  or upon payment  of a  applies  largest  mutual  minimal  i n Canada  fund  I n v e s t o r s Group.  complex" of the  table  g i v e s the  of  these  identifies  assets  (as  Canadian  mutual  listed  i n these  five  31,  a l l Canadian  mutual  To  give  complexes the  fund  31,  complexes.  complexes fund  refer  constituent  o f December  largest  of  are,  which f i t  definition.  size  complex  There  other organizations  This  and  investor  This policy  the  several  "'mutual  of  States.  Canada,  managed by  the  the  load,  United  In  of  within  enable  a mutual the  Report  cross-section  each  with  Most  to  complexes  apportion h i s aggregate  among  is  Policy  held  assets  as  1967.  R e p o r t o f t h e S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n on t h e P u b l i c P o l i c y I m p l i c a t i o n s o f I n v e s t m e n t Company G r o w t h , U n i o n . C a l e n d a r No. 1 0 4 6 , D e c e m b e r 2 , 1 9 6 6 . p. 47.  1967)  48 TABLE I I CANADA'S F I V E AS  AT  L A R G E S T MUTUAL FUND DECEMBER 3 1 ,  COMPLEXES  1967  Management Company and names o f funds i n the mutual fund complex  The (a) (b) (c) (d)  A g g r e g a t e Net o f c o m p l e x ($  I n v e s t o r s Group I n v e s t o r s Growth Fund of Canada L t d . Investors Mutual of Canada L t d . Investors International M u t u a l Fund L t d . P r o v i d e n t M u t u a l Fund L t d .  915.5  U n i t e d Funds Management L t d . (a) United Accumulative Fund L t d . (b) U n i t e d A m e r i c a n Fund L t d . (c) U n i t e d V e n t u r e Fund L t d . (d) U n i t e d Funds Canada International Ltd.  399.8  A.G.F. Management L t d . (a) A m e r i c a n Growth Fund L t d . (b) Canadian Trusteed Income Fund (c) E u r o p e a n Growth Fund L t d . (d) Growth E q u i t y Fund L t d .  257.8  Canadian Channing Corporation L t d . (a) Commonwealth I n t e r n a t i o n a l Corporation Ltd. (b) Commonwealth I n t e r n a t i o n a l L e v e r a g e Fund L t d .  123.0  C a p i t a l Management L t d . (a) A l l - C a n a d i a n Compound F u n d (b) A l l - C a n a d i a n D i v i d e n d Fund (c) A l l - C a n a d i a n V e n t u r e Fund  121.7  TOTAL A S S E T S AT SOURCE:  The and  MARKET V A L U E  f i l e s of the Canadian Committee Investment Contracts  Assets millions)  $1,817.8 on M u t u a l  Funds  49  Temporary  Withrawal  There  are several  shareholder all of  reinvesting  than  others. Regardless  of the case,  does  provide  fund  at l i t t l e  This  list  grow  no  offered  the l i s t  r a t h e r than  which  What  i n the last  every  investor  timing,  must  a  secondary  converted  into  t o encourage  savings  fund  to the  or guessing success.  answer  p r o s e c u t i o n o f any i n v e s t m e n t  industry  with  i s concerned  These  that  decade.  one i s l e f t  industry  t o do t h e n ? "  with  i s no q u e s t i o n , h o w e v e r ,  the mutual  the secret of investment  When?  long-term  reviewed,  fund  right  b y no m e a n s r e p r e s e n t s a l l  There  rate  restrictive  c a n be r e a d i l y  by t h e i n d u s t r y  have h e l p e d  at a rapid  differ  this  investor  sales  o b t a i n e d by i n v e s t i n g i n  their  vehicle.  more  a  cost.  or units  to allocate  the mutual  itself,  or  that  of benefits  shares  services  From  and  of l i q u i d i t y  an o p t i o n  some b e i n g  the mutual  cash  fund  with  such  the opportunity  without  to fund  fund  under  date  fund  mutual  as  i t at a later  withdraw  with  from  inducements  that  of h i s investment  to  The t e r m s  investors  to  that o f f e r the  charge.  mutual  these  funds  or u n i t h o l d e r the r i g h t  or a p o r t i o n  source  the  mutual  the impression  with  market  time action,  "What t o b u y ?  are the questions i n the contemplation action.  50 The of  mutual  than  stock". period an  of  time  growth  the  "the  in fact  f o r the  reader showing  to  the  to the  Investment  in  i t s report  at  the  get  rich  quick  that  a  successful  reasonable conclusion  see  funds  companies.  how  An  fund  Canadian  C o n t r a c t s has which  o w e s much  sums up  analysis  shares  successful  i n s t r u m e n t s and The  DISTRIBUTION  techniques developed  f o r mutual  public.  premise  diversification  demands,  of mutual  distribution  distribution  in  and  find  the  experience.^  rate  distribution  upon  through  MUTUAL FUND CHANNELS OF  effective fund  risks,  i s necessary  investment  The  i s based  attempting to  I t presumes,  VI.  of  industry  reducing investment  rather  of  fund  the  of  Committee  the  will  enable  been  to  offer  Mutual  Funds  following  importance  channels  has  i t has on  the  mutual  or u n i t s  services  the  by  industry  made t h e  to  of  statement looking 16  marketing  side  of  the  H u g h A. J o h n s o n , J o h n s o n ' s nineteenth annual e d i t i o n , p. X V I I I .  mutual  fund  industry.  I n v e s t m e n t Company B u f f a l o , New Y o r k ,  Charts, 1967,  Q u o t a t i o n taken from the f i n a l d r a f t of Chapter I I , p a r a g r a p h 2 . 0 2 , o f t h e u n p u b l i s h e d R e p o r t o f The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d Investment Contracts.  51 "An o f t - q u o t e d a p h o r i s m o f t h e m u t u a l f u n d i n d u s t r y i s that shares or u n i t s o f mutual funds 'are not bought, they're s o l d . L i k e many a p h o r i s m s , t h i s r e p r e s e n t s an o v e r - s i m p l i f i c a t i o n o f a c o m p l i c a t e d situation but contains a s i g n i f i c a n t element o f t r u t h . T r a d i t i o n a l l y , t h e market f o r mutual fund shares or u n i t s has b e e n r e g a r d e d as a m a r k e t i n w h i c h p o t e n t i a l p u r c h a s e r s must be c o n v i n c e d t h a t t h e s u g g e s t e d i n v e s t m e n t i s d e s i r a b l e and a p p r o p r i a t e f o r them." Up has  until  used  t h r e e main  of mutual forces, should use  fund  a l l three  shares  firms  and  vary  direct  forces.  funds  only through  geared  either  on s a l e s  to a large  sale  It companies  managed by that  to a larger  and i n d e p e n d e n t  and depend  firm. market  through  sellers.  a direct The  e x t e n t upon  policy  tradition. Reviewed  handle  historically,  mutual  securities  fund  Commonwealth funds  were  Sales  through  brokers  as p a r t  Investment  for their  o f funds Fund,  using  L t d . and  Corporation Limited.  i n 1932 a n d s o l d  through  Both brokers.  c o n t i n u e d t o be t h e p r i m a r y  the mid-1950's.  who  of a general  channel  Two e x a m p l e s  International  brokers  through  the oldest  are Canadian  established  until  sales  or units  i n Canada.  technique  outlet  shares  b u s i n e s s form  distribution this  sales  industry  i n the sale  to the public:  Some m u t u a l  companies  p l a c e emphasis  fund  not a l l d i s t r i b u t i o n  are available  o r on b r o k e r s  methods  that  the mutual  of distribution  or units  channels.  distribution  force  channels  b e made c l e a r  usually  of writing,  b r o k e r s , and independent  brokerage The  the time  sales  sales  52 Direct  sales  forces  began  fifties  a n d now s u r p a s s  channel  of d i s t r i b u t i o n ,  of  mutual  fund  brokerage of  total  firms. sales  including through the  shares  even  still  rapidly i n the late  i n importance  though  company  fund  a large  terms,  shares  investment  forces,  o f 4% t h r o u g h  as a volume  c o n t i n u e t o be s o l d  In s t a t i s t i c a l  direct sales  balance  brokers  o f mutual  trust  t o grow  through  i n 1967, 66%  or units (not  funds)  30% through  independent  were  made  b r o k e r s , and  sales  forces  the s t a t i s t i c s  i nthe  17 and  other direct The  reader  preceeding of  in  forces.  the late  direct  forces  user  funds or  Despite  of 17  t h e most funds  and e a r l y  of brokers company  which  late  i n importance  salesmen  channel  i s the direct  established One o f t h e e a r l y  by t h e Commonwealth  was m e n t i o n e d  and t h o s e  above  as an  o f a few o t h e r  funds  who s o l d under  mutual shares  common  introduction, the direct sales with  occurring  the greatest  during  the  Internation  of i t s shares. I t ' s  o f salesmen  o f one o r more m u t u a l their  were  1940's.  f o rthe sale  forces  important  i n Canada  of these  was e s t a b l i s h e d  established  units  grew  The f i r s t  Limited,  distribution  that  f o r mutual  1930's  Corporation early  can see from  paragraph,  distribution  sales  channels.  increase  management. forces  i n number  1950's.  S t a t i s t i c s c o m p i l e d b y t h e s t a f f o f The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d I n v e s t m e n t Contracts.  53 Two their  sales  Mutual Ltd.  large  of  In  1957, and  forces  Canada  1950,  company  mutual  and  during  Ltd.  began  Ltd.  and  developed  Investors  the  Fund former  to  the  public.  Ltd.  was  established  p u b l i c by  United  were  formed  shares Fund  which  Accumulative  Syndicate  Accumualtive the  period  United  selling  d i s t r i b u t e d to  organizations this  and  Investors  United  Services  fund  United  Investment  In  Investment  Services  (Quebec)  Ltd. The  Mutual  statistics shares  or  on  units  qualified  1967,  and  date  over  and  full  the  were  net  million.  sales  assets Table  companies  In at  forces  less  selling  than  $5  III, lists i n Canada  information.  end  as  December assets  mutual  31,  at  that  there  were  the  end  of  1962,  the  end  of  1967  was  the  percentage  reasonably  of  offered  at  period,  addition  the  at  that  associated  category  f i g u r e at  remained  of  net  salesmen  this  total.  salesmen  this  forces  or  total  In  part-time  fund  i n Canada  aggregate  salesmen  the  140  direct  or  sale  Throughout  part-time of  for  collected detailed  direct sales  a mutual  corresponding  5,682.  15%  of  having $5  Committee,  Canadian  funds  2,725  Fund  to 1967  mutual  stable  these  at  about  figures,  associated funds  of  with  there  with total  million.  the  seven  well  as  largest providing  distribution other  interesting  C A N A D I A N MUTUAL FUND D I S T R I B U T I O N C O M P A N I E S WITH OVER 200 SALESMEN AS AT JUNE":' 30 , 1 9 6 7  Name o f D i s t r i b u t i o n  1.  United Ltd.  Company  Investment Services  No. o f F u l l § Part-time Salesmen  2,236  M u t u a l Funds  United United  2.  Investors  Syndicate  Limited  3.  Federated  4.  I.O.S.  5.  A.G.R. Management  6. V  A l l - C a n a d i a n Group Distributors Limited  306  7.  Canadian Channing Corporation Ltd.  239  *  The  Investments Ltd.  804  o f Canada  Ltd.  information  Limited  i n the l a s t  434 410 399  c o l u m n was  Distributed  Accumulative American  P r i n c i p a l Investment O b j e c t i v e s of the Mutual Funds*  Fund  Fund Ltd  Ltd.  - growth - maximum c a p i t a l - income -growth - maximum c a p i t a l  I n v e s t o r s Growth Fund o f Canada Ltd Investors International Mutual Fund L t d . . I n v e s t o r s M u t u a l o f Canada L t d . F e d e r a t e d F i n a n c i a l Fund L t d . . . . F e d e r a t e d Growth Fund Ltd Regent Fund L t d A m e r i c a n Growth Fund L i m i t e d . . . . C a n a d i a n T r u s t e e d Income Fund...E u r o p e a n Growth Fund L i m i t e d . . . . Growth E q u i t y Fund L i m i t e d A l l - C a n a d i a n Compound Fund A l l - C a n a d i a n D i v i d e n d Fund A l l - C a n a d i a n V e n t u r e Fund L t d . . . Commonwealth I n t e r n a t i o n a l Corporation Limited Commonwealth I n t e r n a t i o n a l L e v e r a g e Fund L t d s u p p l i e d by  the o r g a n i z a t i o n s  gain  gain  growth growth stability growth with stability growth growth maximum c a p i t a l g a i n growth maximum c a p i t a l g a i n income security stability growth maximum c a p i t a l g a i n maximum c a p i t a l g a i n growth growth maximum c a p i t a l g a i n maximum c a p i t a l gain growth balanced  fund  growth  themselves. On  55  All in  except this  table  and  that  of  Canada  Venture under  L t d . began Ltd.  forces.  discussion  companies choice  point  section  of view  of mutual  i n an  will  with  o f I.O.S. funds  earlier  that  recall  from  from  t h e management  i t was d e s i r a b l e  funds  I.O.S.  r e s u l t of the use of  The r e a d e r  i n that  when  of mutual  was d i s c u s s e d a  fund,  the shares  The d e v e l o p m e n t  part  included  one m u t u a l  recently  distributing  and i s i n l a r g e sales  forces  than  was c h a n g e d  common m a n a g e m e n t  direct  a  d i s t r i b u t e more  exception  Fund  section  the  one o f t h e d i r e c t s a l e s  t o have  different  available  investment  obj e c t i v e s . One be  a d d i t i o n a l aspect  mentioned,  create.  and t h i s  For this  i s that  reason  to  make a s u b s t a n t i a l  an  e f f e c t i v e direct sales  reason both  a  organizations  investment  are able  force.  This  prepared  to develop  i s possibly  organizations  s t a r t e d by l a r g e  organizations  from  Because  force  aspect  comparatively  Table  number  r i g h t across  one  were  the United  involved,  of the industry  small  extends IV .  of t h e expense  should  are expensive to  and I n v e s t o r s  domination by  only  they  forces  why t h e U n i t e d  States. sales  of direct sales  the direct  i s dominated by  of organizations. Canada  a s i s made  This clear  TABLE  IV  CONCENTRATION OF D I R E C T S A L E S FORCE SALESMEN BY REGION AT JUNE 3 0 , 1967 Region  No. men  of s a l e s active  % of salesmen i n each g e o g r a p h i c a l area a s s o c i a t e d w i t h the i n d i c a t e d number o f t h e l a r g e s t distribution companies Largest  Atlantic Provinces Quebec Ontario Manitoba Saskatchewan Alberta B r i t i s h Columbia  357 1 ,536 1,528 224 399 660 897  2  larg.  3  larg.  4  larg.  5  1 ar g  21 ,.6 51 ,. 0 46 ,. 3 56 ..3 25 ,. 3 34 ..4 47 ,. 9  36 ..4 64 .. 7 63 ,. 8 74 ,.6 44 ,. 9 55 ,. 0 62 ,. 3  47 ,.6 71 ,. 9 73 ,.6 86 ,. 2 60 ,. 7 67 ,. 7 75 ,. 9  58 79 81 93 75 75 82  .5 .0 . 2 .8 .4 .8 . 1  67 . 8 85 . 1 87.3 98 . 7 82 . 5 83.5 87 . 4  39 ,. 1  53 . 2  60 . 8  67 . 9  74 . 9  5,601 Canada  Note:  5,718  This t a b l e i n d i c a t e s the p e r c e n t a g e of the d i r e c t s a l e s f o r c e salesmen i n e a c h o f t h e g e o g r a p h i c a l r e g i o n s who w e r e a s s o c i a t e d w i t h t h e l a r g e s t , a n d t h e t w o , t h r e e , f o u r and f i v e l a r g e s t d i s t r i b u t i o n c o m p a n i e s . One distribution company, w i t h the s e v e n t h l a r g e s t d i r e c t s a l e s f o r c e i n Canada, c o u l d n o t p r o v i d e a b r e a k d o w n o f i t s W e s t e r n C a n a d a s a l e s m e n among t h e f o u r Western p r o v i n c e s . I t i s t h e r e f o r e not r e f l e c t e d i n the p e r c e n t a g e s f o r M a n i t o b a , S a s k a t c h e w a n , A l b e r t a and B r i t i s h C o l u m b i a ; i t s t o t a l number o f s a l e s m e n i n t h e f o u r p r o v i n c e s a t J u n e 3 0 , 1967 was 117.  57  The is  second  through brokers.  recently by  channel  started  individuals  funds.  Many  following sales  they  of these salesmen  among  with  able  sales  third  forces  a number  mutual  represent  a recent  fund who  were  arrangement  number  a variety  cases  receive  a higher  would  be  the  forces,  since  portion  of t h i s  on  which  funds  a  sales  choice  direct  latter  enable  on  Canadian  sales  sales  forces.  force  i t t o make  sales  t o the managers  of d i r e c t a  Like  has of  a  available  customers.  acquisition  allocate  mutual  persons  companies  as m e m b e r s  must  sale  organizations  independent  of the  independent  the  to i t s p o t e n t i a l  t o them  charge  in  i n the  distributing  proportion  the  direct  i s the  These  independent  salesmen  available  orders,  companies  a r e m a i n l y managed by  the  funds  of mutual  In most  or u n i t s .  each  with  of mutual  exclusively  salesmen  houses,  mutual  signed  with  of d i s t r i b u t i o n  development  They  formerly  brokerage an  shares  industry.  of  by  have  clients  staffed  solicit  of d i s t r i b u t i o n  specializing  fund  actively  sale  to those used  their  have  funds .  channel  of mutual  i n the  these salesmen  to provide  several The  similiar  firms  above  fund departments  exclusively  Because  mentioned  brokerage  separate mutual  engaged  forces.  are  Several  procedures  agreements  of d i s t r i b u t i o n  forces charge sales  significant  above  them.  than  58 Although has  been  with  channels  Committee able  on to  of  Mutual  or  and  part-time  that  which and  have  sell  invest  the  found  the  pooling  managed are,  of  briefly that  stated  stands  demand by  or  unit.  as  investment  to  small obtain  35  30,  such  Canadian  Contracts on  17  a total  such  of  341  holder  Closed-end  of  the  public  bonds,  and  in  investors,  but  them  They  have  These  distinguishing  apart  a mutual i s an  at  asset  not  from  other  features which  organization  i t s issued  do  certain  fund  redeem net  through  securities.  fund  the  a professionally  set  of  intermediaries  to  organizations,  companies,  financial  which  a mutual to  are  companies  a definition that  funds  portfolio  features  the  have  June  The  instruments  enable  prepared  on  to  in stocks,  investment  in  about  Investment  mutual  companies.  covered  and  at  SUMMARY  savings,  basically,  As  were  forces  comparison  i n Canada.  financial  They  distinguishing  were  that  diversified  investment  there  them  proceeds  money m a r k e t .  by  sales  salesmen.  seen  their  small  detailed information  VII.  We  independent  distribution.  Funds  collect  the  still  in existance  organizations full  of  are  i t i s estimated  organizations  was  growth  r a p i d , they  other  1967,  the  value also  offer this  securities per  share  classified feature.  59 Mutual ways;  funds  they  are incorporated  unincorporated  under  trusteed  mutual  of  their  legal  is  usually  be  form  company  fund.  company  profits  referred  company  the  commissions  on t h e s a l e  behalf that  company  o f more  On  other  institutions.  trust  companies funds  The although  can e x i s t  to their  topic  company  fund  Many  distribution  company.  i n the  t o as a  i s compensated of mutual  from  also  to mutual some  management through fund allows the  t o a c t on t h e  fund.  the other hand,  have  a  or losses  of structure  one m u t u a l  a mutual  relationships  mutual  type  and s a l e s  than  distinguish  institutions. that  This  group  mutual  i s c o m p e n s a t e d by  and t h e d i s t r i b u t i o n received  fund  the  o f t h e management  fee  management  be  and sometimes  of remuneration, u s u a l l y  or u n i t s .  Regardless  on t o t h e p a r t i c i p a n t s  The m a n a g e m e n t  shares  o r an u n i n c o r p o r a t e d  a mutual  would  allows portfolio  directly  federally,  t h e r e a r e two o r more  These  i f i t i s not part  passed  form  so t h a t  or  company.  of organization  involved.  structure  indenture,  of a t r u s t  t h e management  company This  fund  o r g a n i z e d i n one o f t h r e e provincially  a trust  structured  organizations fund,  are usually  I t i s these other  i t was  features  financial also  shown  between  mutual  funds  and  brokerage  firms,  banks  and  become  associated  with  or  offer  clients.  of mutual  fund  i t had been b r i e f l y  growth touched  was d i s c u s s e d upon i n C h a p t e r I I .  60  In  this  based  chapter, however,  on  the  findings  Mutual  Funds  and  mutual  funds  that  Later benefits mutual  fund  o f The  Investment fitted  i n the  or  the  shares  Canadian  we  represent  the  package  offers.  The  list  who  observed to  units.  the  of b e n e f i t s  investing,  variety was is  conveniences,  of mutual  implied  that  long-term  his  savings  these  savings  The the  mutual  on  the  various  direct  role  i n the  included  that  the  an  shares  forces  marketing sales of  reader  are  has to  to  of  shares  regulari  that  and  with  to  handle  such  followed  invest manage the  investments. a  In r e c e n t  the  offer  will  provided  sold.  It  allocate  continue  basis  played  industry  averaging,  wishes  chapter  have  rundown which years  predominant by  brokers  forces.  this now  fund  of d i s t r i b u t i o n through  or u n i t s  essence  withdrawal.  markets,  the  in  liquidity,  institution  associated  of  purchase  professional  industry  who  a professional  channels  purpose the  to  equities  section  sales  temporary  investor  features  independent The  in  last  fund  the  i n the  and  who  mutual  dollar-cost  product  savings  administrative  and  the  a t t r a c t i v e to  his  of  funds  included  non-monetary  investors  the  on  only  These b e n e f i t s  or p r o d u c t  were  definition.  management, p o r t f o l i o d i v e r s i f i c a t i o n , of  used  Committee  Contracts,  provided  or  figures  i t s suggested  chapter  services  growth  chapter  has  been  knows what m u t u a l  accomplished funds  are,  61 how in  they size,  what and he is  a r e o r g a n i z e d , how how  funds  differ  relationships what  benefits  knows  what  they they  the i n d u s t r y  from  have  other  the mutual  fund  grown  financial  to other  provide.  has  financial  Much more  product  institutions, institutions  than  this,  i s a n d how i t  distributed. In  one  different for  respect  from  sale.  many  other  I f such  to  sell  of  the product  and  the mutual  which  on t h e p a r t  an a g g r e s s i v e  sales  industry  f i r m s t h a t have  a firm  i t s product,  fund  i s t o grow  products  i t must  i n turn calls  be  f o r an  of the p o t e n t i a l  f o r c e t o go  i s no  able acceptance  purchaser,  o u t and s e l l  the  product. In  this  chapter,  at  the product  We  have  is  distributed.  also  the mutual  looked  and  the a b i l i t y  has  greatly  pace.  These  among o t h e r  industry  Both  the a t t r a c t i v e n e s s  of the i n d u s t r y  to sell  the industry  factors  a l l the c r e d i t  f o r the rapid  fund  industry  1957  public  demand  industry in  has  the mutual  chapter.  fund  to  the  growth  offer. product  of the  at a  The  product  creation  product  rapid be  of the  as t h e y  and  looked  i t s product  t o grow  i n as much  f o r the instruments to offer.  have  a l o n e , however, cannot  with  since  we  has  a t t h e means by w h i c h  assisted two  fund  things,  mutual  both  services  attributed  depend  the  of p u b l i c  i s the subject of the  interest next  upon  CHAPTER  PUBLIC  In  ACCEPTANCE  Chapter  I I , we  1957,  the growth  rate  other  major  owes much and by  fund  equity as  the p r i n c i p a l  exceeded  fund  that of  situation  industry  techniques  developed  have  o b v i o u s l y been  which  have  altered  of mutual  institution  public interest  There  f o r such  some p r e d o m i n a n t  the preferences  industry  over  the services provided  are  created.  level of  The f i r s t  of economic  individual  borrowers  savers  b e n e f i t from  that  can respond  this  preferences  institutions  i s c r e a t e d by a s h i f t a changing  and i n t h e wants  at a p a r t i c u l a r  that  by f i n a n c i a l  development,  period  type  attitude  i n time.  needs  i n the  and needs o f  of preference  to the changing  fund  financial intermediaries.  a r e two ways i n w h i c h  for  product?  f o rthe  and o b l i g a t i o n s o f f e r e d by t h e m u t u a l  there  fund  factors  by s a v e r s  o f f e r e d by o t h e r  funds investment.  i n the mutual  services  Basically,  offers  companies, but could not  and t h e a c c e p t a n c e  those  since  increasing public interest i n  financial  What h a s g e n e r a t e d  the period  This  the mutual  distribution  instruments,  funds  institutions.  distribution  h a v e o:c_o.urrr_e_.d w i t h o u t  FUNDS  during  of mutual  financial  the e f f e c t i v e  OF MUTUAL  saw t h a t  t o the package  mutual  IV  Institutions are those  of a  developing  63  economy by and  p r o v i d i n g the  services.  through  The  second  innovations  by  alternatively  create  of  will  preference  next  this  chapter  preference.  isolate  the  Canadian The  mutual  preferences  the  What  and  instruments  This  of  created  which  second  type  discussion in  this  are  influential  by  chapter  of  what  t h a t have  three -  development  i t will  be  quick  the  to  and  the  an  i s that  a mutual i t has  because  of  not  Canadian  changing  wide  range  major  offer  the  repeated  into  to  that  as  a  savers  f o r the  appear  in personal  sophistication  financia funds  shifted  limelight?  t o be  net  show  mutual  t h a t have growth  financi  as  p o s s i b l e to  Canadian  the  here.  I I I , provided  demand  factors  factors  be  savers.  explained  fund,its role  I t i s now  financial  the  recognize  Chapter  to  created  increase  the  i t s assets.  s e r v i c e s were  need  institution major  aided  to  s e r v i c e s demanded by  and  and  type  necessary  t h a t have  s e r v i c e s o f f e r e d by are  former  p r o v i d i n g the  institution.  and  the  i n d u s t r y i n expanding  reacted  and  particular  There  so  examine  factors  repeating  What t h e n  the  is  institutions  i s stressed here,  definition  factors  doing  instruments  i s worth  intermediary  the  topic  will  instruments  these  financial  we  fund  previous  a basic  a  the  i n d u s t r y was  financial  in  preference  demands.  predominant  aided,  fund  Some o f  In  mutual  term,  of  of  financial  new  be  type  instruments  chapter. In  of  desired financial  most  savings, by  savers,  64 and  a marked  financial analysis they  preference  institutions. of these  have  also  be  these fund  factors industry.  so, the reader  of  the competition  in  the  Broadly  as b y  stresses private  during  speaking,  that  financial  chapter  will  of the  too w i l l  impact  mutual  be  have  mentioned.  some a p p r e c i a t i o n fund  industry  SAVINGS  a l lf i n a n c i a l  the r i s e  a developing  during  periods  o l d age.  social  the savings  middle  continuous  process  to this  and  that and  income  unemployment  developed  income  savings  government  as  trend  numerous attract I  the expanding  net  consciousness  of both  of high  have  intermediaries  i n personal  In response  institutions  facilitate  from  other  institutions  the mutual  organizations to provide  financial to  have  the r e s p o n s i b i l i t i e s  payments as  this  they  P E R S O N A L NET  b e n e f i t e d from  well  the  future.  I.  as  o f a few  financial  will  facing  with  be m e n t i o n e d  the growth  i n terms of growth,  doing  certain  t o a d i s c u s s i o n of- t h e  upon  I f other  By  have  had  proceeding  reason,  exclusively have  through  i t should  the growth  For t h i s  devoted  benefited  Before  factors  aided  institutions. not  f o r saving  well the programmes  funds  Q  class.  18 S i d n e y R o b l i n s , The S e c u r i t i e s M a r k e t s Operations a n d I s s u e s , The F r e e P r e s s , New Y o r k , 1966 , p . 2 1 5 .  65 Nevertheless, that  us  their  fulfil  examine  attempt  more  funds  their  the growth  financial  than  others  to those  desired  t o s e e why  particular of  a r e some  have b e n e f i t e d  allocated best  there  from  have  who  objectives.  i n personal  has b e n e f i t e d  as s a v e r s  institutions  savings  the mutual  institutions  net savings  fund  could Let  i n an  industry i n  the changing  desires  savers . In  1961  Canada  there  f o r personal  has been  net savings  personal  disposable  observed  by r e f e r r i n g  As allocate  tendency  to surpass  income.^  This  to Figure  2,  since  the growth i n  tendency and T a b l e  c a n be V.  individuals  increase  t h e amount o f income  to savings  combined  with  over  the returns  will  be t h e g r o w t h  their  a strong  fields  obtained  on t h e i r  of f i n a n c i a l  of a c t i v i t i e s  a greater savings,  concern the greater  institutions  i n the areas  they  expanding  demanded by  savers  S i n c e 1966 t h e p e r s o n a l n e t s a v i n g r a t e h a s t e n d e d to l e v e l o f f . The p o s s i b l e e x p l a n a t i o n f o r t h i s m i g h t b e b a s e d on a c o m b i n a t i o n of demographic changes and r a p i d l y r i s i n g p r i c e s . Younger consumers who a r e n o t c o n s i d e r e d t o b e h i g h s a v e r s , a r e b e c o m i n g a l a r g e r proportion of the t o t a l population. Moreover, in the face of r a p i d p r i c e i n c r e a s e s , higher t a x r a t e s , and more c o m p u l s o r y w e l f a r e p a y m e n t s , t h e r e a p p e a r s t o be m e r i t t o an a r g u m e n t " t h a t c o n s u m e r s a r e w i l l i n g to d e c r e a s e t h e i r s a v i n g r a t e and t o b o r r o w h e a v i l y i n order t o maintain growth i n t h e i r r e a l standard of living.  1160  1%H  1%S 1166 1%7 116 &  t '"  TART.F  V  P e r s o n a l Net Saving as a % o f P e r s o n a l D i s p o s a b l e Income  TABLE  PERSONAL  FISCAL YEAR  PERSONAL DISPOSABLE INCOME MIL . $  1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968  SOURCE :  21,274 22,880 23,948 25,075 26,011 28,243 30 ,018 31,725 35,145 38,579 41 , 709 44,964  Bank Also  INCOME,  E X P E N D I T U R E S , AND S A V I N G S  PERSONAL EXPENDITURES  MIL . $ -20,072 -21,245 -22,591 -23,540 -24,466 -25,926 -27,487 -29,666 -32,061 -34,848 -37,714 -40 ,916  V  PERSONAL NET SAVING  I N CANADA - 1 9 5 7 - 1 9 6 8  PERSONAL NET S A V I N G AS A % OF P E R . D I S . I N .  MIL . $ 1,202 1 ,635 1,357 1 ,535 1 ,545 2,317 2,531 2,059 3,088 3 ,731 3,995 4,048  % 5 .7 7. 1 5 . 7 6.1 5 .9 8.2 8.4 6 .5 8.8 9.7 9 .6 9 .0  PERCENTAGE PERCENTAGE GROWTH GROWTH I N P E R . I N PERSONAL NET D I S . INCOME SAVINGS % 5 .6 7.5 4.7 4. 7 3.7 8.6 6 .3 5.7 10 . 8 9 .8 8. 1 7.8  % -8.9 36 . 0 -17.0 13 . 1 . 7 50 . 0 9. 3 -18.6 49 .9 20 . 8 7. 1 1. 3  o f C a n a d a S t a t i s t i c a l Summary, S u p p l e m e n t 1 9 6 5 . t h e J u n e M o n t h l y S t a t i s t i c a l Summary, 1 9 6 9 .  ON  68 If  history  repeats  consciousness There not  about  One  the  rewards Proof by  the  of  lies  to  the  in  minds  of  public  their  savings  i n an  extensive H.  in Security Prices  inflation  of  savers.  for  inflation  of c o r p o r a t i o n s . earned  t o work  Lorie  undertaken  at  the  substantial  in corporations.  study  at  do  inflation.  equities  James  that  when C a n a d i a n s  i n v e s t o r s have  F i s h e r and  Research  the  that passes  invest  putting  this  from  disadvantages  y e a r s , many by  i t is unlikely  erased  open  i s to  Lawrence  for  be  a day  approach  protection Over  will  is hardly  hear  itself,  the  centre  University  20 of  Chicago.  would  have  Their faired  study  i n terms  s h o w s how of  an  average  annual  of  r e t u r n compounded  a n n u a l l y , assuming  in  the  of  the  common s t o c k s  New  York  There article. first  are  The  one  Stock  which  of  s h o w s how  an but  of  dividends  on  dividends  or  capital  on  liquidation. would  apply  equal  investments  corporation listed  tables presented  significant  reinvestment  that  rates  on  Exchange.  a number  most  each  investor  In to  gains  table,  in  however,  investor faired without and  other  words,  the  portfolio  payment  without  the of  data a  this is  the  with of  taxes  commissions are  those  tax-exempt  inves t o r .  L a w r e n c e F i s h e r a n d J a m e s H. L o r i e , " R a t e o f R e t u r n on I n v e s t m e n t s i n Common S t o c k t h e Y e a r - b y - Y e a r Record 1926 - 1965 ," The J o u r n a l o f B u s i n e s s , J u l y , 1968 , pp^SL-316-  69 Because shown the on  of  this  i n the  table  compound savings  and  with  media,  i n the  annual tax  for  the  was  17.7%,  the  rate  was  and  the  They  also  on  by  the  rates  of  terminal  (1926  most  banks  to  1965)  other  investment  among o t h e r  things,  that  rate  return  of  and  compounded  reinvestment  December  December  1957  1962  admit  the be  that  basis  no  to to  impossible  to  r e s u l t i n g from that  the  initial of  the  wealth  the  annually, of  dividends  December  December  1965 1965  a c t u a l l y makes  in their  the  rates  a p o l i c y of  i t is possible  and  initial  study  make a d e f i n i t i v e  the  investment  table to  one  assumed  r e l a t i o n s h i p between  to  chartered  to  showed,  r e l a t i o n s h i p between  wealth  directly  figures.  from  on  rates  the  by  periods,  published  most  stocks  pre-tax  s t a t e , however,  about  paid  common  as  authors  the  compared  for  22.6%.  i t would  about  be  return  yields  ending  and  investments  of  various  exemption  period  The  that  are  study  assuming  can  published  which  average  rates  interest rates  the  The  the  the  i n the  to  are  say  table  something  terminal  implied  corresponding  investment  statement  random s e l e c t i o n .  r a t i o s of  which  and  that  ratios  would  21 result  from  simple  random s e l e c t i o n .  2 1 L o r i e and F i s h e r d e f i n e " s i m p l e r a n d o m s e l e c t i o n " as • '•'any s c h e m e w h i c h p r o d u c e s e q u a l e x p e c t a t i o n s of the ; amount o f i n i t i a l i n v e s t m e n t i n e a c h s t o c k - a scheme, for e x a m p l e s u c h as e q u a l p r o b a b i l i t i e s o f s e l e c t i o n with equal investment i n s e l e c t e d stocks. -  70  They  say  that  That  i s , an  these  investor  would,  on  as  investor  the  average,  Despite out an  of  the  that  any  the  of  one  who  ended  earned  risk  at  a given  must  assure  changing  variables  aid  securities dealers  and  i s , of  which  in his  provide  departments  risk  money  therefore,  re-examine to  his  meet  prices  equity  his  and  the  constantly  weighed  in  portfolio  selection.  investor  brokers  lose  means,  m u s t be  course  - the  i n d u s t r i e s are  offering exceptional  and  research  the  generated  may  stock  wealth  return  continue  Both  companies  investment  This  they  objectives. of  time  constantly  that  prospects  To  same  i n s e c u r i t y ownership  person  random  table.  there  Fisher  average.  i n the  study  investor  and  rates  at  the  and  alert  policy  with  of  an  investment  the  same on  stocks  rates  a particular security.  to  up  the  favourable  in  holdings  be  selected  have  who  Lorie  element  r a t i o s would  as  the  well  as  continual value,  the  services their  search  investment  of  own  for  their  specialized  e x p e r i ence. The financial for  rate  community, however,  that  i n mutual  recorded  combination investors.  has  benefited  advice.  i n Canada.  growth  to  group  investment  investing  a  brokerage  of  by  It is quite  funds  Thus,  from  i s growing  part  mutual  of  funds  investment  the  the  at  an  reason  that  impressive for  they  that  one  desire  apparent  i s that  services  i s only  the provide  appear a t t r a c t i v e  71  Many  of  these  chapter;  others  The  desire  capable  of  is  only  one  to  expand  worth  will by  be  held  discussed  which  t h e i r assets  over  a  explained  assisted  i s that the  returns  over  prices  from  those of  the  next  chapter. outlets  savings  selected  stock  portion  have b e n e f i t e d  per  years.  and  previous  investment  the  years  substantial  i n the  i n the  individuals for  factor  considering  equities  were  o f f e r i n g higher  considerably that  services  dollar  institutions  Another have  factor  climbed  institutions  t h e i r assets  rewards  of  in  capital  appreciat ion. The to  take  listed their to  four  distinct  advantage i n Table  assets  influence  the  growth  the  VI.  A  upsurge  by  percentage  this  recorded  that  glimpse  represented  their yearly  the  of  groups  were  i n stock at  the  growth  these  rate,  groups.  position  prices  portion  common s t o c k  particular factor by  in a  has  are  of  in relation clearly had  indicates  upon  72 TABLE  VI  COMPARISON OF GROWTH AND STOCK HOLDINGS OF S E L E C T E D F I N A N C I A L GROUPS Percentage Change in Assets  1.  2.  3.  605 . 5 %  47-48%  60 . 8 %  Open-End M u t u a l Funds 1957-1966  211.7  13-14  82 . 7  Closed-End Inves tment Companies 1957-1966 •  130.8  Although are  included trust  many  also  because  both  trust  as f i n a n c i a l  90 .9  12-13  and agency  16 . 8  A trust  estate,  as a f i n a n c i a l  trust  managing  and agency  institution.  they  implications f o r  company b e i n g  as an a d m i n i s t r a t o r  separate  accounts  intermediaries,  o f t h e growth  companies.  functioning great  262.5  the estate,  not c l a s s i f i e d  were  9-10  F i n a n c i a l Intermediaries, a Reference Survey, P u b l i s h e d by t h e Economic A n a l y s i s Branch, O f f i c e of the Chief Economist, Department o f Economics and Development, September, 1967.  Source  and  Percent of Stocks Held to Total Assets  Estate, Trust S Agency Accounts 1961-1966  4. T r u s t e e d P e n s i o n Funds 1956-1966  the  Ave r a g e Annual Growth Rate  a  hybird a  accounts  The e s t a t e ,  trust  73  and  agency  activities  managing  individual  or  fee.  fixed It  in  section  channel  their  their  be  allocated  will  II.  some  reasons  returns  on  tremendous  certain  probably will which  be  offered over  light  prompt the  a wider  range  of  will  institutions in  subsequent questions.  d e s i r e of continue trend  future  competitive  of  efforts  financial  savings  unanswered  It will  a l l financial  and  preferred  sophisticated  made  This  f o r the  a broadening  public  the  institutions.  among  questions  SOPHISTICATION  future.  tremendous  should  their  be  these  above,  implications  emerging  to  on  savings  i n the  financial  they  financial  will  FINANCIAL  their  mean t h a t  will  Where w i l l  attempt  indicated  c o n s i s t e n t path  have of  shed  An  of  percentage  outlets  more  Which  consist  the d i s c u s s i o n  where  becoming  future?  DEVELOPMENT OF  For higher  to  decide  approach?  i n the  from  some s a v i n g s  savers  b e n e f i t most?  sections  a  savings  for a  C e r t a i n obvious  are  Are  companies  holdings  savers  Why  trust  determine  savings.  others?  in  to  how  come t o m i n d . over  the  asset  is difficult  this  of  the to  savers  to  run  will  growth quite  pressures  institutions range spread  activities.  of s e r v i c e s costs  for  74 Such  pressures Leon  may  well  Kendall  stimulate  presents  innovations.  a very  worthwhile  argument;.  22 to  this  he  suggests  the  effect.  stock  articles to  that  to  savers  It  lists  3,  i n the the  the  mattress  the  falling  are  few.  be  upon  moves, found  assumes  bottom a  the  the  i n an that  speaking,  are  the  investment  normally,  investors their  population  sees  available  alternatives.  risks  them  business  f i g u r e one  great;  are  the  U.S.  direct  the  top,  individual  of  altering  Kendall  to  of  the  investment  financial sophistication.  l e s s e r reward;  At  greater  of  in  investors, ranking  cashbox,  p o t e n t i a l rewards  Generally one  the  to  savings,  ability  the  investment  open  s e c u r i t y , but  decisions but  At  that  options  of  and  the  without  a scale  the  form  choices  investment. greater  indicates  lists  in  number of  and  market  up  trends  in participation  increased  i n the  i s moving  Figure  increase  the  spending,  general  discussing  i n magazines,  suffer losses  from  the  market, found  consumer in  In  the are  finds management  large,  management  decisions  many.  f u r t h e r toward  portion  of  portfolio.  the  equities The  i n d i v i d u a l s progress  top to  scheme from  indirect  L e o n T. K e n d a l l , "The New Environment Facing F i n a n c i a l I n t e r m e d i a r i e s i n the Next Decade", Readings i n Financial Institutions, H o u g h t o n M i f f i n Company, B o s t o n , 1965, pp. 284-304.  75 FIGURE ZONES OF  3  FINANCIAL SOPHISTICATION  Pull toward G r e a t e r Reward and G r o w t h NE  OF  HIGH  SOPHISTICATION  mand f o r M a n a g e m e n t D e c i s i o n s by Individual  NE  OF  MODERATE  Business investments Real Estate Speculative stocks S p e c u l a t i v e mutual funds Blue-chip stocks Corporate stocks  G S > O  <x> c o  SOPHISTICATION  mand f o r D e c i s i o n in principle (at least initially)  4J  Balanced diversified mutual funds Credit unions S a v i n g s and l o a n Associations  <4H  o e C  •H  c o u NE  OF  LITTLE  OR  NO  Demand f o r M a n a g e ment D e c i s i o n s ( o r very minimal)  Minimum Se c u r i t y Maximum r e w a r d Minimum availability Speculative  Medium security Medium r e w a r d Medium av a i 1 ab i 1 i t y Considered s1ightly speculative  SOPHISTICATION Mutual savings banks Commerical Banks Government savings bonds Cash box Mattress/drawer/socks Pull toward Greater Security  Maximum securi ty Minimum r e w a r d Maximum availability Not speculative  76  to  d i r e c t investment,  in  equity  way  ownership.  i n d i c a t e the  size  and  to  The of  fuller  ranking  asset  participation does  holdings  not  in  in  any  various  categories. If  Kendall's  setting, must  i t would  alter  amount  of  their  the  wayside  offering What to  the  Kendall's  valid  unless  i s the  thesis?  of  Canadian  mutual  fund  saver  sophistication.  o f f e r i n g to  counselling  these with  of  the  This be  desired  in relation  intermediaries include  greater  investment saving  mix  fall  respond  by  of a t t r i b u t e s .  m u s t be  drawn  to  as  intermediaries  thesis the  future and  the  attempting  i n C a n a d a we zones  respect  answered i f  the  In  management.  will  question  to  a  i n Canada w i t h  in particular.  Kendall's  Canadian  intermediaries  situation  to  and  sources  financial  industry  substantiate  Canadian  are  i n the  financial  traditional  conclusions  growth  to  package  liabilities then  is valid  mean t h e  investment  Certainly, by  thesis  of  must  analyze  financial  the  77 Canadians "conservative inclined equities. the  York  have  historically  been  i n v e s t o r s , " meaning  to invest This Study,  i n debt  myth  classified  that  securities  t h e y were rather  has r e c e n t l y been  commissioned  as more  than  challenged  by t h e T o r o n t o  by  Stock 23  Exchange He w r i t e s  under  the d i r e c t i o n  i n this  of Professor  G. R.  Conway.  regard,  " C a n a d i a n s a r e n o t more c o n s e r v a t i v e i n v e s t o r s than Americans. I n f a c t , i n many i n c o m e g r o u p s , r e l a t i v e l y more C a n a d i a n s i n v e s t i n s t o c k s and they i n v e s t a l a r g e r p r o p o r t i o n of t h e i r assets i n e q u i t i e s t h a n do t h e i r U n i t e d S t a t e s counterparts Some o f t h e i n t e r e s t i n g  statistics  d e v e l o p e d by t h e York  25 Study  are l i s t e d  as f o l l o w s :  1.  T h e r e w e r e an e s t i m a t e d 3 0 0 , 0 0 0 a d u l t e q u i t y h o l d e r s i n C a n a d a i n 1 9 5 5 , a n d b y 1965 an e s t i m a t e d 700,000 C a n a d i a n e q u i t y h o l d e r s .  2.  C a n a d i a n i n d i v i d u a l s a t t h e e n d o f 1966 owned a p p r o x i m a t e l y 40% o f t o t a l market v a l u e o fa l l l i s t e d Canadian e q u i t i e s .  3.  T h r o u g h i n s t i t u t i o n s , C a n a d i a n s owned an a d d i t i o n a l 9% o f t h e t o t a l m a r k e t v a l u e o f a l l l i s t e d Canadian e q u i t i e s at t h e end o f 1966.  4.  F o r e i g n h o l d i n g s by C a n a d i a n i n d i v i d u a l s and f i n a n c i a l i n s t i t u t i o n s a t t h e e n d o f 1966 t o t a l l e d $3 b i l l i o n o r 1 5 % o f t o t a l d o m e s t i c a n d foreign holdings.  G. R. C o n w a y , The S u p p l y o f , a n d Demand f o r , Canadian E q u i t i e s , (Toronto: The T o r o n t o S t o c k E x c h a n g e , September, 1968) , " C o n s p e c t u s " , p p . 8-12. - I b i d , p.10. Ibid,  pp. 8-12.  78 5.  The n u m b e r o f t a x p a y e r s r e p o r t i n g i n t e r e s t as c o m p a r e d t o t h e n u m b e r r e p o r t i n g dividends is r e l a t i v e l y higher i n the United States than i n Canada.  6.  F i x e d income s e c u r i t i e s g e n e r a l l y form a l a r g e r proportion of the t o t a l investment assets of i n d i v i d u a l s i n the U n i t e d S t a t e s than i n Canada.  These Canadians  points  the  greater  his  investment level  brought  new last The  up t h e s c a l e  of e q u i t i e s  listed  issues  i s a clear  toward  greater  market  t h e new  moves,  i n 1968 and e a r l y  By t h e same  token,  on t h e T o r o n t o  became  issues  public  Stock  companies  investors  This  i n d i c a t i o n that  making;  thus  since  new  Canadians  sophistication.  moving  1969  Exchange  willingness  to purchase  of equities  o f t h e 53  p a r t i c i p a t i o n i n investments  decision  financial  Kendall  sophistication is partly  that  subscribed.  of Canadian  greater  financial  t o be f o u n d i n  d i s t r i b u t i o n s were l i m i t e d t o C a n a d i a n s  part  of  made b y  t h e t o p an i n v e s t o r  of financial  thirty  fully  that  portfolio.  r e a d i l y absorbed.  issues  of  toward  to the stock  year,  moving  by t h e f a c t  companies  one t o b e l i e v e  on t h e p r e s u m p t i o n  the p o r t i o n  substantiated  were  based  the f u r t h e r  The  lead  are d e f i n i t e l y  sophistication that  would  1965.  and t h e on t h e unseasoned are moving requiring  up t h e s c a l e  79  III.  INVESTING  We  have  THROUGH F I N A N C I A L  observed  that  Canadians  investors  and  financial  sophistication  the  i t i s somewhat d i f f i c u l t  case,  indirect such A  look  the the  may  some  the  strong  the  effect  on  more  mutual  as  t o why  fund  i n the  equities,  toward  form  Canadian  the  of  being  of  why  more  popular.  supply  of,  the  small  attitude  investor  investors  equity  have  participation.  E q u i t i e s Markets  argument': i s e x p r e s s e d  amount  This  and  many of  scale  and  c l a s s s t r u c t u r e , the  community  the  institutions  by  c l a s s s t r u c t u r e i n C a n a d a has the  up  to understand  financial  i s becoming  clues  aggressive  f o r some t i m e .  f o r , Canadian  Structure A  the  financial  preferred  that  at  demand  provide  Class  funds,  are  have been moving  i n v e s t i n g through mutual  close  and of  as  probably  INSTITUTIONS  common s t o c k  John had  a  Porter limiting  a v a i l a b l e to  26 middle  class  ownership frequent stock  has  investors.  He  proceeded  complaints  a v a i l a b l e to  become  consolidated  amount  of  to  that  the  there  purchase; dln'the  common s t o c k  suggests point  hands  traded  where  i s very and  on  as of the  J o h n P o r t e r , The V e r t i c a l M o s a i c S o c i a l C l a s s on P o w e r i n C a n a d a , P r e s s , 1965 , p . 2 4 9 .  that  the  there  little  large  centralized are  good  holdings  wealthy,  Canadian  the  Exchange,  - An A n a l y s i s U n i v e r s i t y of  of Toronto  80 diminishes.  His  have  consequence  a social  apart  from  any  economic  social  effect,  amount  of  this,  he  equity  participation of  he  belief  i s that of  great  e f f e c t s on  suggests capital  i s the  of  consolidation  importance  quite  markets.  This  reduction  of  the  a v a i l a b l e for extending  i n ownership  concludes  a l l patterns  of  that  Canadian  the  social  industry.  growth  of  the  Because  middle  2 7 level  income  belief  investor  i s summed up  class  i n the  is  limited.  following  This  quotation:  " B o t h i n c o m e a n d e s t a t e s t a t i s t i c s g i v e some i n d i c a t i o n of the heavy c o n c e n t r a t i o n of e q u i t y c a p i t a l , and t h e r e f o r e o f t h e c o n t r o l o f t h e productive resources of the s o c i e t y . I t would seem t h a t C a n a d a does n o t h a v e a l a r g e m i d d l e level investing class. It i s clear that a good measure of c o n t r o l r e s t s w i t h a s m a l l group o f v e r y r i c h o r i n some c a s e s w i t h t h e i r r e p r e s e n t a t i v e s ,\" LO  Selected certainly the  tend  equity  Canadian  statistics to  confirm  holdings  and  published  of  foreign  that  elsewhere  a major  Canadian  would  portion  of  individuals, in  equities, i s held  by  both  income  groups  2 9 earning  over  holdings for  the  income  per  $10,000. family  $10,000 class  Ibid.,  p.  I b i d . , p.  and  i n the  are over  In more  a d d i t i o n , the than  income  $7,000 t o  four  class  $10,000  average  times than  greater  for  the  range.  244. 118.  A t t h e end o f 1966, 6 4 % o f C a n a d i a n and f o r e i g n e q u i t y h o l d i n g s of C a n a d i a n i n d i v i d u a l s were h e l d by i n c o m e g r o u p s e a r n i n g o v e r $ 1 0 , 0 0 0 . Conway, op . c i t . , p . 1 0 .  81 The  basis  Table of  VII.  Taken  statement  comes  from  together,  the percentage  e q u i t i e s by income groups e a r n i n g  and  the percentage  holdings of  f o rthis  of families  per f a m i l y , tend  over  to strengthen  Class  and a v e r a g e  the argument by J o h n P o r t e r .  VII  WHO'S I N THE STOCK  Income  of holdings  $10,000  owning s t o c k s  "degree of c o n c e n t r a t i o n " professed  TABLE  t h e numbers i n  MARKET  Percentage of families owning s t o c k s Average  Holdings  $1,000  2.7%  $ 3,137  $1 , 0 0 0 - 2 ,000  3.1%  $ 5,919  $2 , 0 0 0 - 3 , 0 0 0  3.1%  $  $3,000-4,000  4.0%  $ 6,716  $4,000-5,000  4 . 3%  $  5,335  $5 , 0 0 0 - 6 ,000  5.9%  $  4,768  $6,000-7,000  7 . 8%  $  5,733  Under  6,243  $7,000-10,000  12.7%  $ 4,110  Over  26 . 3 %  $18,835  Data:  $10,000  Dominion Bureau of S t a t i s t i c s , s t o c k s , 1966.  publicly  traded  82  The  validity  of  Porter's  growth  implications  for  mutual  fund  i s based  with  concept  mutual  he  on  a  were  capable  scale  equivalent  Professor institutions savings  equities summed up  of  of  play  the  markets in  to  that  of  a major  i n the  the  the  also  lower  that  stock  the  role  the  in  small  he  wealthy  might  investor accrue  investor.  that  financial  channeling  groups  future.  the  market  suggested  income  following  in  definite  same b e n e f i t s  entering  Conway has  will  funds  has  upon p r o v i d i n g  a p o r t f o l i o o f f e r i n g the  if  the  arguments  into  His  the  belief is  quotation;  "Presumably, a l a r g e p r o p o r t i o n of the monies b e i n g a s s e m b l e d by t h e m a j o r C a n a d i a n f i n a n c i a l institutions r e p r e s e n t the s a v i n g s of the $10,000 or l e s s i n c o m e g r o u p , and i t i s , t h e r e f o r e , q u i t e p r o b a b l e t h a t w i t h i n a few y e a r s c l o s e r t o 40% o f a l l h o l d i n g s of Canadian e q u i t i e s by C a n a d i a n s w i l l be h e l d b y t h i s i n c o m e g r o u p . " ^ 0 Canadian The the  of  to  invest  in  the  may  be  - Supply  implications  small  amount  Equities  investor  battle to  method  i n the  financial  institution.  a  financial  institution  the  30  class  direct  in  45.  has  a  for  limited  available  for  him  therefore,  effects markets  However,  investment  c i t . , p.  be  defense,  equities  future.  C o n w a y , op  may  harmful  may  Factors  structure  there  of  the  a  individual's  Demand  common s t o c k  against  invest  the  i s that  desirable i n . His  and  of  through  investing  itself  inflation  worsen  opportunities  through the in  83 The by has  reason pension  i s that  the rapid  funds, mutual  reduced  further  funds,  opportunities  classes.  Some p r o o f o f t h i s  examination  Canadian The  Canadian  This  and i n s u r a n c e  companies  t o t h e low and m i d d l e c a n be f o u n d  of Canadian  market  issues  has been  limited  Equities.  growth  income  through  small  to the  from  financing  f o r some b u s i n e s s e s .  been  that  and  building  pay  t h e owner  and  often  i n part  from the  financing  w i d e l y used  financing,  Still  and  finance  another  i n shopping  rental  has the subsequent  years  equipment,  A l s o under  the tenant  a specified  and  of long-term  of buildings  c a r s and t r u c k s .  arrangements",  1966.^  has t a k e n p l a c e i n r e c e n t  t h e leas,ing  particularly  Canadian  of the installment source  supply of  1962 t o  of mortgage  a s an i m p o r t a n t  development  T h e new  has r e s u l t e d  importance  the p o s i t i o n i n g  coming  companies  has  of extending  o f t h e s u p p l y o f , and demand f o r ,  equity  increasing from  purchases  equities.  Supply  stock  of equity  the p o s s i b i l i t y  investment  an  growth  "leaseback  centre  agrees  to  f o r an a g r e e d  option  period,  to purchase.  The n e t new e q u i t y f i n a n c i n g o v e r f o u r y e a r s 1 9 6 2 t o 1 9 6 6 was $ 1 . 9 b i l l i o n o r a b o u t 8% o f t h e m a r k e t value of a l l l i s t e d Canadian companies at the b e g i n n i n g of the p e r i o d . Conway op. c i t . p . 3 3 .  84 In  effect,  although  appears  result  factors,  (wide  small  the  government  has been i n c u r r e d ,  have  trends  i s s u e d a n d no  to restrict  with  ownership  o f many C a n a d i a n ownership  balance  combined  nonresident  size  been  on t h e b o r r o w e r ' s  of these  the  tended  debt  no s e c u r i t i e s  liability The  long-term  sheet.  other  of stock,  c o m p a n i e s , and  o f many u t i l i t i e s )  the supply  32  of equities  have available  33 to  the Canadian Omitted  factor  needs  earnings  fluctuated  This  32  33  capital  between  picture  influential  of  comes  of Canadian  financing from  retained  allowances.  1957 t o 1 9 6 5 , r e t a i n e d consumption  allowances  90% and 110% o f t o t a l  formation.  dropped  financing  years  businesses  the period  capital  A vivid  share  d e p r e c i a t i o n and d e p l e t i o n  plus  financing  t h e most  on t h e s u p p l y  the major  of Canadian  During  in  the squeeze  i s that  earnings,  fixed  above, but l i k e l y  causing  equities  public.  In 1966, i n t e r n a l  t o 78% o f t o t a l  of the role  business  business  that  spending  business internal  i n each  spending. funds  of the  1957 t o 1 9 6 6 , i s p r o v i d e d  i n Figure  4.  r e p r e s e n t a t i o n i s expanded  i n Figure  5,  to  show  of  total  the percentage domestic  breakdown  capital  played  of financing  formation  instead  R e p o r t o f t h e R o y a l C o m m i s s i o n on B a n k i n g and F i n a n c e , Queen's P r i n t e r and C o n t r o l l e r o f S t a t i o n e r y , O t t a w a , 1 9 6 6 , C h a p t e r 3. I b i d . , p . 41 .  FIGURE  4 85  INTERNAL  11<&S  SCALE: SOURCE:  11S«1 j  CORPORATE  FINANCING  I1M  I860  B I L L I O N S OF D O L L A R S BANK OF CANADA, S T A T I S T I C A L SUMMARY, SUPPLEMENT 1 9 6 6 .  _ T o t a l Business Spending (Bus. F i x e d C a p i t a l Formatior - Corporate Retained Earnings  D  - C a p i t a l Consumption Allowances  FIGURE P E R C E N T A G E BREAKDOWN OF THE F I N A N C I N G OF DOMESTIC C A P I T A L FORMATION  SCALE: SOURCE:  86  KEY - Other L i a b i l i t i e s and Transactions  PERCENTAGE BANK OF CANADA, S T A T I S T I C A L SUMMAj SUPPLEMENT 1 9 6 6 .  - Net New I s s u e o f C o r p o r a t e Bonds - Net New I s s u e o f C o r p o r a t e Stock - Corporate Retained Earnings •  - C a p i t a l Consumption Allowances  8 7  of  just  the  f i n a n c i n g of  residential slightly sources in  greater  one-third It  was  to  of  at  62%  this  changes  in  (17 to  to more  two  measures  Federal  equipment  on  in 34  observe  be  based  increases f o r the  and  (broadly,  excess  of  the  various aimed  ending  between secondly  ,000.  explanation  years  tax  curb  i n the  reduction  in  depreciation  plant of  the  introduction corporate plus  1966)  1966  t  date  on  in  expansion March  new  investment  the  after-tax profits  $30  steadily  three  a  5,  a  fixed  v a r i e t y of  refundable  to  public policy  To  the  Figure  in business  introduced  large  the  on  rates.  notably  65%  than  that  on  of  obtained  5 percent  drawn  Part  1966.  a  October,1967,  flow  to  declined  Budget,  allowances  a  sources .  then  were  gross  external  and  sustainable  by  by  1961  range  formation  less  p o s i t i o n of  can  available  slightly  made i n g o v e r n m e n t a l  20%  capital  i t s 1957  decline  that  total  represented  interesting  in  restraining  of  non-  and  provided  from  79%  about  for  was  f i n a n c i n g p o r t i o n , as  increased high  domestic  businesses  and  It i s obvious  two-thirds  concept  is also  internal  than  financing  i t s broadest of  machinery  construction.  for  savings  new  the  and Budget  and  of  cash depreciation)  3 4  1966 B a n k o f C a n a d a A n n u a l R e p o r t o f t h e G o v e r n o r t o The M i n i s t e r o f F i n a n c e , a n d S t a t e m e n t o f A c c o u n t s , Bank o f C a n a d a , O t t a w a , F e b r u a r y , 1967, p.26.  88 The  result  businesses retained was  about  earnings  the  flow available  larger  than  The  internal  effect o f new  o f new  mutual  and t h e  increased  financing  money r a i s e d  i t runs  appetite funds  i n 1966.  i s obvious by t h i s  completely  for equities  and o t h e r  from  has upon t h e  by  -  means  U n f o r t u n a t e l y , the problem  trend i s that  a growing  from  t o $2.75 b i l l i o n  corporate stock  on  allowance  i n 1965  by b u s i n e s s e s  i n 1965  decrease.  funds,  cash  measures had  and d e p r e c i a t i o n  financing  amount  this  policy  $1 b i l l i o n  issuance  to  that  only s l i g h t l y  external  to  was  these  tended  with  counter pension  institutional  investors. Some shortage  interesting  i n Canada were  figures  on t h e  g i v e n by  R.  M.  equity Macintosh 35  and  K.  E. They  Bissell, list  and a r e w o r t h  four factors  which  considering. caused  the  shortage of supply of Canadian equities. 1. The h i g h r a t e s o f d e p r e c i a t i o n w h i c h allowed f o r corporate tax purposes. 2 .  35  are  The t e n d e n c y o f c o r p o r a t e management t o r e t a i n a generous share of net p r o f i t s , s i n c e t h i s i s t h e most c o n v e n i e n t and p e r h a p s c h e a p e s t way t o r a i s e new f u n d s .  R. M. M a c i n t o s h a n d K. E. B i s s e l l , T h e B a n k o f N o v a S c o t i a , "Some F a c t o r s i n t h e S u p p l y o f a n d Demand f o r C a n a d i a n E q u i t i e s " , The C a n a d i a n C h a r t e r e d A c c o u n t a n t , V o l u m e 8 9 , N u m b e r 5, N o v e m b e r , 1 9 6 6 . p .  373  89 3.  The f a c t t h a t c o r p o r a t e b o r r o w i n g from outside sources are deductible f o r tax purposes whereas c o r p o r a t e d i v i d e n d s are n o t .  4.  The i n c r e a s i n g d e p t h market.  Their  article  suggested  of the short-term that unless  the  corporate  t a x s t r u c t u r e was  changed  so t h a t  financing  became  cheaper,  there  little new  prospect  supply For  debt  will  about  and  process, other  however,  dividends that to  heavy  debt  a s do t h e v i e w s  of banks  and  Given  that  before  these  interest  computing  operating  from  earnings  p a y o u t t h e same a m o u n t  on  burden  limits  and  on  institutional  basic conditions,  charges taxable  income  the  corporate  puts  m u s t be p a i d  pre-tax  an u n d u l y  of  the return  "leverage"  position  the fact  an e x p e n s e  the views  than  because  financial  investors.  be  annual  so i s l e s s  the a d d i t i o n a l  assuming  a sound  would  i n the  the extra assets  Of c o u r s e ,  maintaining this  from  equity  i s an i n c e n t i v e t o i s s u e  of doing  b e n e f i t s from  equity.  management  as  as t h e c o s t  accrue  growth  existing  equities.  corporations, there  shareholder the  of s i g n i f i c a n t  of Canadian  as l o n g  which  relatively  money  are deductible profits,  after  m u s t be  of dividends  taxes, twice  as  and means high  as i n i n t e r e s t  , 36 charges. 36 A s s u m i n g a 5 0 % c o r p o r a t e t a x r a t e , i f $50 o f a d d i t i o n a l i n t e r e s t i s p a i d , o p e r a t i n g e a r n i n g s n e e d r i s e o n l y $50 f o r e x i s t i n g s h a r e h o l d e r s t o be u n a f f e c t e d . I f extra s h a r e s p a y i n g a d i v i d e n d o f $50 a r e s o l d , o p e r a t i n g e a r n i n g s must r i s e $100; t h i s w i l l be f u l l y a b s o r b e d by e x t r a t a x l i a b i l i t i e s o f $ 5 0 , a n d t h e d i v i d e n d s t o new s h a r e h o l d e r s o f an e q u i v a l e n t amount.  90 This  i s one r e a s o n  fixed  dividends  why, p r e f e r r e d  have become  account  f o r only  Another  reason  less  shares  with  important  their  a n d now  about  one-third  of a l l stock  i s that  preferred  shares  issues.  have  generally 37  lost  their The  why  appeal  with  discussion  the supply  extensive,  but gives  supply  terms,  n e t new  during  t h e 1957-1966  than  very  o f new  period  These  announced  a n d some  publicly  corporate  While  keep  financing  this  i n mind  that  represented  a l l publicly  been  running  In r e l a t i o n financing, about  c a n be f o u n d  the r o l l  slightly  only  year  slightly  placement  p a r t i c u l a r data,  have  without  stock  of the accumulated  1 9 5 7 t o 1 9 6 6 , n e t new  represent  statistical  $2.6 b i l l i o n  private  from  external  to  include  and e q u i t i e s  has expanded  spending.  In  corporate  amounted  figures  breakdown  debt  reviewing  should  i n d i c a t i o n of the  issues  announced.  A yearly in  the reasons  equities.  of which  common s h a r e s .  not  little  of Canadian  $3.3 b i l l i o n  place.  e q u i t i e s has n o t been  Canadian  issues  issues  i n the market  above p r o v i d e s  of Canadian  actual  less  investors  issues  around  1961.  5% o f t o t a l  stock  changes  over  VIII  external However,  of corporate  12% o f t h e a g g r e g a t e  substantial  by  stock  business  to the d i s t r i b u t i o n  corporate  i n Table  the reader  played  since  increases  issues figure  of  total  only -  again  the e n t i r e ten  period.  37 "Preferreds are not p r e f e r r e d " , 1 3 , 1 9 6 8 , p p . 1, 4.  The  F i n a n c i a l Post,  July  9..1 TABLE NET NEW Fiscal Year End o f  CORPORATE S E C U R I T Y  Corporate Bonds  (FIGURES  O t h e r Bonds and Debentures  IN  VIII ISSUES  I N CANADA  Pre f e r r e d Stock  - 1957 - 1966  Common Stock  T o t a l Common and Preferred  M I L L I O N S OF C A N A D I A N D O L L A R S )  1957  955  4  89  426  515  1958  661  4  -2 5  287  312  1959  98  21  72  332  404  1960  305  27  36  184  220  1961  331  28  309 ( 1 )  245  1962  422  10  66  271  337  1963  582  30  49(2)  -98(2)  -49  1964  761  11  39  293(1)  332  1965  1,198  39  155  304(1)  459  92 1  33  190  331  521  6,234  207  657  1966 TOTAL NOTES :  SOURCE:  -64(3)  2 ,639  3,296  CD  Includes d i s t r i b u t i o n b y B.C. P o w e r C o r p . , t o i t s s h a r e h o l d e r s o f f u n d s r e c e i v e d f r o m t h e P r o v i n c e o f B.C. i n p a y m e n t f o r t h e common s h a r e s o f B.C. E l e c t r i c C o . L t d . , t h e s e d i s t r i b u t i o n s a m o u n t e d t o $87 m i l l i o n i n 1 9 6 1 , a n d $ 1 1 5 m i l l i o n i n 1 9 6 4 , a n d $2 m i l l i o nL i n 1 9 6 5 .  (2)  I n c l u d e s t h e r e t i r e m e n t o f $ 3 4 5 m i l l i o n common s t o c k a n d $55 m i l l i o n p r e f e r r e d s h a r e s o f t h e p r i v a t e l y o w n e d h y d r o - e l e c t r i c c o m p a n i e s w h i c h w e r e t a k e n o v e r by Q u e b e c Hydro. $53 m i l l i o n o f t h e p r e f e r r e d were e x c h a n g e d f o r bonds g u a r a n t e e d by t h e P r o v i n c e o f Quebec. Also i n c l u d e s new i s s u e o f $44 m i l l i o n s h a r e s o f S h a w i n i g a n Industries Ltd.  (3)  I n c l u d e s r e t i r e m e n t o f $ 1 0 4 m i l l i o n B.C. E l e c t r i c p r e f e r r e d s h a r e s e x c h a n g e d f o r b o n d s g u a r a n t e e d b y t h e P r o v i n c e o f B.C. Bank  o f Canada  Statistical  Summary, S u p p l e m e n t , 1 9 6 6 .  92 In  a d d i t i o n to net  source  of  to  supply  the  Canadians from  Canadian  new  equities  e n t e r i n g the  have been  net  non-residents,  of  equities  the  total  net  securities  from  about  million.  $794 To  problem  some  from  have  since  i n the  United  added 1962, stock  "Non-Resident themselves  From  1962  outstanding has  same t y p e  another  Canadian  divested  a l l non-residents  the  of  the  of  is  Since  1959.  purchases  extent,  exists  m u s t be  market.  mainly  Funds" which  1966,  which  purchasers  Owned M u t u a l Canadian  issues, there  of  to Canadian  amounted  equity  S t a t e s , and  to  supply  i s summed  up  39 by  Raymond  W.  Goldsmith.  To  quote  him:-  "The m a r k e t f o r common s t o c k s i n t h e p o s t w a r p e r i o d h a d t h e o u t s t a n d i n g f e a t u r e t h a t new common s t o c k i s s u e s were r e l a t i v e l y s m a l l compared t o the i s s u a n c e of o t h e r c a p i t a l market i n s t r u m e n t s , to t h e v o l u m e o f i n t e r n a l and e x t e r n a l f i n a n c i n g o f c o r p o r a t i o n s , t o t h e v a l u e o f common s t o c k o u t s t a n d i n g and t o t h e t o t a l a s s e t s o f m o s t i n v e s t o r g r o u p s " . To  give  some I n d i c a t i o n  in  the  future  we  can  turn  to  i n terms the  of  the  following  as  t o what might  supply estimate  of  be  Canadian  made b y  expected equities,  Professor  Conway.  D o m i n i o n B u r e a u o f S t a t i s t i c s , The C a n a d i a n B a l a n c e of I n t e r n a t i o n a l P a y m e n t s , 1963 - 1 9 6 6 , a n d International I n v e s t m e n t P o s i t i o n , C a t a l o g u e No. 6 7 - 2 0 1 , A n n u a l , 1966. R a y m o n d W. G o l d s m i t h , The F l o w o f C a p i t a l F u n d s i n t h e P o s t w a r Economy, C o l u m b i a U n i v e r s i t y P r e s s , New York and L o n d o n , 1965, p.18.  93 He p r e d i c t s issues  of about  The  Demand  has  been  financial funds  a projected  $700 m i l l i o n  f o r Canadian  a growth  institutions,  state  o f n e t new  that  equity  a year  Equities.  i n t h e demand  and t r u s t e e d  Bissell,  level  In Canada  for equities  especially  by  by t h e m u t u a l  pension funds. the factors  there  M a c i n t o s h and  that  have  created  41 this  demand a r e :  1.  Rising assets  2.  The r a p i d g r o w t h the r i s e i n r e a l corporate fringe  3.  The r a p i d g r o w t h o f m u t u a l f u n d s d u e t o s u c c e s s f u l s e l l i n g methods, p r o f e s s i o n a l i n v e s t m e n t management, and a c c e p t a b l e p e r f o r m a n c e f r o m t h e p o i n t o f v i e w of the small i n v e s t o r . This l a t t e r factor i s related t o t h e g r o w i n g d i s e n c h a n t m e n t on t h e p a r t o f t h e i n d i v i d u a l with the r e s u l t s of h i s d i r e c t p a r t i c i p a t i o n i n the stock market. The  in  Table  Canadian corporate  p e r s o n a l incomes and t h e a c c u m u l a t i o n o f out of personal savings.  trend  of c o r p o r a t e pension funds r e f l e c t i n g incomes and t h e e l a b o r a t i o n o f benefits.  i s obvious  IX, which  show  institutional  from  the s t a t i s t i c s  the extent to which investors  have  Conway, op . c i t . Macintosh  p.35.  and B i s s e l l ,  pp . c i t . ,  the  invested  stock.  p.374.  provided largest i n Canadian  94  TABLE INSTITUTIONAL  YEAR  INVESTMENTS  Mutual Funds 1. (FIGURES  IN  Trusteed Pension Funds 2. I N M I L L I O N S OF  IX  C A N A D I A N CORPORATE STOCK  Closed End F u n d s 3.  Life Insurance Co.s 4.  C A N A D I A N DOLLARS  -  1960  -  1965  Trust Mortgage Companies Loan 5. C o . s 6.  - BOOK  TOTAL  VALUES)  1960  313  E  259  251  E  176  42  31  1,072  1961  385  E  342  281  E  218  53  33  1,312  1962  473  E  423  315  E  220  63  38  1,532  1963  582  519  453  257  65  52  1,823  1964  709  647  404  338  67  56  2,221  1965  918  820  429  420  75  55  2,707  1966  992  982  454  520  84  58  3,090  Increase679  723  203  344  42  27  2,018  NOTE: E  SOURCE:  E  - E s t i m a t e s t a k e n f r o m a t a b l e p r o v i d e d b y R. M. Macintosh a n d K. E. B i s s e l l , C a n a d i a n C h a r t e r e d A c c o u n t a n t , N o v e m b e r 1966, p.374. 1, 3, 5 and 6. - B u s i n e s s F i n a n c i a l S t a t i s t i c s - S e l e c t e d F i n a n c i a l I n s t i t u t i o n s , 1963 - 1966, D o m i n i o n B u r e a u o f S t a t i s t i c s , Ottawa. 2. - T r u s t e e d Dominion 3. - B a n k  of  Pension Plans - F i n a n c i a l Bureau of S t a t i s t i c s . Canada  Statistical  Statistics,  Summary, S u p p l e m e n t ,  1960  -  1966.  1966.  95 From  1960 t o 1966 t h e s e  $2,018 m i l l i o n During to  t h e same  the c a p i t a l  Thus,  worth  these  almost  institutions  reason  did  not absorb  issues are  i s that  placed  only  which  meet  these  i n well  for  them by t h e C a n a d i a n A c t and l i s t e d  are  basically  been  implied It  Table  major  seasoned  companies  standards  Conway.^ out that  under  funds  Section  issues  s e t by  or s e t  Insurance  financial  investors  institutions  equity  themselves,  IX, are the segregated  insurance  such  i n the " E l i g i b l e  conservative  be p o i n t e d  probably  Normally,  Canadian  was  o f t h e new  and B r i t i s h  by P r o f e s s o r  should  capable,  part  quality  institutions  that  has  Book". institutions also  1  omitted  from  managed by t h e 81 ( 5 )  42 Figures 43  derived  ^  of Canadian  institutions  i n the market.  financial  concept  supplied  of digesting  supply  t h e t e r m , were  t h e minimum  The  stocks.  issues  capable  absorbed  stocks.  the  Companies  were  a l l or a large  interested  corporate  $2 ,065 m i l l i o n .  o f t h e n e t new  why  institutions  t h e n e t new  market;;total led  common a n d p r e f e r r e d  underlined  of Canadian  period  the whole  The  s i x major  from  Tables  C o n w a y , op . c i t . , p . 1 6 .  VIII  and IX  life  96 of  the  Act.  Canadian  and  Established  can  be  wholly  the  total  i n 1961,  invested  assets of  approximately grew  British  $2  the  of  the  Companies  segregated  in equities. segregated  million  to a p o s i t i o n  Insurance  at market  $197  million  funds  In  1961  funds  were  value,  and  by  end  the  44 of  1967. Another  from  Table  accounts  IX,  conducted  by  the  E.T.  survey  value  of  deposit which  equities.  I t was  ct A.  Accounts  also  indicated  securities  trust  holders and  demand  the  cover  Banking  was  48%  of  generated  pension  about  the  invested  20%  of  per  ye  market  in  funds  held for insurance to  survey  r e p r e s e n t s $300 m i l l i o n that  be  demand  for equities  accounts  amounted  must  estimated i n a on  omitted  agency  They  behind  Commission  the  I t d i d not  equity  companies.  force  that  i n 1962  book  Royal  of  estate,  trust  a growing  a l l these  equities.  group  the  by  f o r the  Finance  This  at  as  Canadian  and  are  managed  considered for  important  Canadian or  companies, total  assets  value.  44 The C a n a d i a n L i f e I n s u r a n c e A s s o c i a t i o n , S u b m i s s i o n t o The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d Investment Contracts (Toronto: The C a n a d i a n Life Insurance A s s o c i a t i o n , June,1968), p.9.  97 The of  following table assets  i n d i c a t e s t h e known book  i n a l l E.T.  § A. A c c o u n t s  TABLE E.T. ESTIMATED  Accounts IN CANADIAN  1961 1962 1963 1964 1965 The  Result  of Excess  Demand  f o r Canadian  what t h e o v e r a l l  and  for equities implies  other a  than  financial  particularly  been  stockholders net s e l l e r s  marketable probable pension to  absorb  entering as  presently  to financial stock.  and o t h e r  the Canadian  issues  stockholders acquire stock,  subscription  rights;  of seasoned  Furthermore,  i t would  financial  of mutual  groups  e q u i t i e s markets investment  of the extent  equities i s provided  have  institutions  will  seem funds,  continue  common s t o c k i s  as w e l l quality  stocks  outstanding.  pub 1 i c a t i o n s .  of,  of corporate  net purchases  out the highest  Some i n d i c a t i o n for  since  a s u b s t a n t i a l p o r t i o n o f t h e new  searching  dollars  Equities.  undoubtedly  o f f e r e d under  the combined  funds,  of  m u s t , f o r t h e 1960 t o 1966 p e r i o d  corporate  that  i s that  institutions  of those  VALUE  a n a l y s i s of the supply  s u b s t a n t i a l p o r t i o n o f new  other  E Q U I T I E S - BOOK  $2,697 m i l l i o n s 2,955 3,218 3,606 3,919  Basically, demand  t o t h e end o f 1965.  X  tt A.  INVESTMENT  value  of this  i n two r e a s o n a b l y  demand recent  98 The  first  i s the Report  Structure that  the increase  funds over to  the period  project  will  pension  years want  an  of  Thus  would  This  rate  was  over  also  by  made  mutual  companies  the next  financial  institutions  $6 b i l l i o n  in  Canadian  whose h o l d i n g s  and had i n c r e a s e d  financial  million  equities.  Study,  predicted  institutions  could  i n equities.  demands To  this  f o r both figure  an  per year  i s added  representing  for equities  by o t h e r  Canadian  institutions,  be  few y e a r s , on  a year  possible  $300 m i l l i o n  e s t i m a t e d demand  the York  the next  $1 b i l l i o n  includes  o f $800  since  year.^5  t h r e e major over  by  $300 m i l l i o n  an a v e r a g e  publication,  and f o r e i g n  additional  that  billion  equities  insurance  of about  s t o c k s each  about  figure  financial  attempt  institutions,  acquiring  to invest  Canadian  an  be  second  average,  be n e a r l y An  than  o f $3 b i l l i o n  t h e same  looking  $5  t h r e e major  these  average  Canadian  that  may  s t o c k s a t t h e e n d o f 1966 h a d an e s t i m a t e d  value  The  suggested  indicated mutual  and l i f e  t o a c q u i r e more  annual  1960,  funds  these  Canadian  market  funds  on t h e  f o r s t o c k s by  1967 t o 1 9 7 0 .  I t was  stocks. of  i n demand  the h o l d i n g s of Canadian  1975.  eight  Force  I n d u s t r y , which  and t h e p e n s i o n  funds, in  of Canadian  o f the Task  by C a n a d i a n  corporations,  and  46 by  Canadian  individuals.  45  4  6  F o r e i g n O w n e r s h i p and t h e S t r u c t u r e o f C a n a d i a n Ottawa: Queen's P r i n t e r , 1968, pp. 284-5. Conway, o p . c i t . , pp. 4 0 - 4 1 .  Industry,  99 Considering trends  p o p u l a t i o n growth,  i n Canada,  a further  of people  covered  From  viewpoint  by  the  the l i f e  of the pension  might  represent  a  plans  of stock  share  demand  expansion  by p e n s i o n  insurance  social i n t h e number  i s probable.  investing,  efforts  industry to enlarge i t s market  through  substantial  for equity  and  securities  variable  new  annuities  institutional  by t h i s  financial  institution. Eventually, lead in  t o t h e same  the United  individuals the  the trends  stock  during  type  States  have  of s i t u a t i o n since  averages  fundamental  market.  Considering this  they  are becoming  stocks. mutual every  Meanwhile funds  year.  Thus,  t h e new  and m u t u a l  longer of  disenchanted funds  attracted  market  selling  that  i t seems  pension  h a v e become more  made b y i n d i v i d u a l s funds  matter;  t h e U.S.  upward  i n the stock  t r e n d , i t no  increasingly  while  shifted  the bearishness  on a t r a n s i t o r y  developed  U.S.,  even  suggesting  had changed  seems p o s s i b l e t o r e g a r d investors  sellers,  of optimism;  might  t h a t has  were b e i n g  something  above  1957. I n t h e  been heavy  market  periods  discussed  to  clear, with and  to stock  i n America,  stocks  individual  is  pension  funds. ^ 4  47 New Y o r k S t o c k 1964, p . 3 7 .  Exchange,  "Institutional  Shareownersh  100 In would  Canada,  mean a t r a n s f e r  to  Canadian  is  obvious  shows  that  financial groups funds  industry  Canada  equities  invest  because  that  Canadian supply. alone  funds  and t h e t r u s t e e d  a rather  demand  detailed  f o r Canadian  aided  First,  by t h e f a c t  an i n t e r e s t  This  situation  by t h e s m a l l  investor  amount  of desirable  of the mutual  second  in;  fund  r e a s o n why t h i s  i t has been equities  predicted  will  reducing  individual  grow  common  stock  increasing  was n e c e s s a r y  t h e demand f o r  financial  to triple  t h e number  Canadian  analysis  that  funds  significantly.  continue to exceed  The demand b y C a n a d i a n easily  thereby  industry  mutual  f o r Canadian  of the limited  f o r him t o invest  to  that i n  f e w y e a r s t h e demand the supply.  of  equities,  through mutual  could  thereby  the last  about  analysis  a c h i e v e d by t h e C a n a d i a n  has been  pension  33% r e s p e c t i v e l y .  market  assets The  is  were  i n the stock  available the  c o n c e n t r a t e d i n two  has exceeded  brought  IX, which  institutions  the growth  over  This  o f common s t o c k by-  was n e c e s s a r y f o r t w o r e a s o n s .  fund  funds.  the data presented i n Table  now c o m p l e t e s  that  individuals  and mutual  a c c o u n t i n g f o r 37% and  show  to  from  to this  the net purchases  supply of,and  which  has  from  similiar  of stock  pension funds  - the mutual  This the  a development  their  the foreseeable institutions  1966 h o l d i n g s ;  of shares available t o  investors  and n o n - r e s i d e n t i n v e s t o r s .  101 The is  impact  discussed  The  small  i n the  has  been  Canadian  competing  This  does  stock  from are  the best  fact in  suited  yield And it  even may  the  full  this, have  begun  that  problem financial equities.  the  able  to s e l e c t  assistance  costs  be  per  that  of return  the  dollar  firms  invested  f o r odd-lot  earned  on  small  investor  and  net  the s e c u r i t y .  of brokerage  i n Canada  commissions,  i s not  paying  a result  the  reluctance  small  charges  investor's  level  a marked  The  s u b s t a n t i a l f o r the  the  of  securities  markets  o f h i s t r a n s a c t i o n s . As  t o show  of  United to  States  service  accounts .  by  members  to  the b e l i e f  in  be  to reduce  current  cost  the  the  with  impossible  the  Current  into  can  rate  be  that  of Canadian  securities  the  the  brokerage  smal1  that  purchases  well  with  supply  not  investor  Investor  established  that  o r U.S.  I t i s not  at  Small  i n d i v i d u a l s and  to say  securities  below  Canadian  section.  i s faced  will  the  f o r h i s i n v e s t m e n t programme.  i s , however,  small  on  the  well  limited  b r o k e r he  equity  and  wealthy  mean  Canadian  have  following  investor  for a  not  investor. on  may  fairly  with  institutions  a:  trend  F i n a n c i a l Community It  of  this  using  the  opinions  of the that  financial the  financial  equities  about  small  the  small  community  lend  investor will  institutions  markets.  investor  as  expressed  strength be  a means  forced of  participating  102 One day  the  Leslie  strong small  early  1968,  current  was  an  By  he  the  data  d a t a on  be  the  a partial  investors;  the  with lack  Canadian  cause  is  and  the of  press  comprehensive  investment i n and  of worthwhile  individuals.  research  of disenchantment  thereby causing  Mr.  securities  institutions  lack  some  of F i n a n c i a l  of a growing  Canadian  same t o k e n ,  may  small  by  that  that  vanish,  interview  suggested  i m p o r t a n t cause  will  Minister  I n an  research  securities  of the b e l i e f  investor  Ontario  Affairs.  and  U.S.  Canadian  Rowntree,  Commerical in  proponent  them  of  to flee  from  48 the  market. Another  person  who  feels  that  the  small  investor 49  may  be  eased  A discussion said  that  Canadian  of  the  of the  institutional  of  income.  but  gently firms  firms  eased  out  felt  their  institutional  there  needs  was  individuals  certainly at  would  investing  of t h e i r  this  i t s greatest  i n the market  equity  more  out  to the  community w i t h  White. White  mainly because  that  certain  continue to devote  S.  being carried  i s geared  investors  of d i r e c t  Alden  i n M a y , 1 9 6 9 , Mr.  investor,  He  eventually  i s Mr.  research  brokerage  shortage of small  time,  to  the w r i t e r  p r o v i d e s the brokerage  source no  of the market  with  most  by  group  out  time  as and  that be brokerage efforts  accounts.  48  49  "The L a c k o f A d e q u a t e S e c u r i t i e s R e s e a r c h D a t a i s B l a m e d f o r S w i n g t o I n v e s t m e n t i n U.S.", T o r o n t o and M a i l , J a n u a r y 27, 1968, p2. Mr. W h i t e i s t h e A s s i s t a n t R e s e a r c h M a n a g e r w i t h Wood G u n d y  Securities  Limited,  Toronto.  Globe  103 In  terms  of the actual  small  clients,  Stock  Exchange, has r e c e n t l y  lose  money  the  present  but  some  J . R.  cost  Kimber,  on t r a n s a c t i o n s time,  firms  specialization  after  President  of the Toronto  said  member  that  o f $1000  members  make  of looking  or  l  do n o t r e f u s e  i t a point  e  activity  s  this  to advertise  in institutional  firms s  A  t  business their  and  ability 51  to  provide In  services  f o r large  the United  States,  York  Exchange  the  New  of  S e c u r i t i e s Commission  brokers' of  Stock  profits  institutional  relatively the  whereas,  business  business  executing  investors  clients.  a special report on P r o f i t s  Revenue,  prepared  as a  revealed  by  Percentage that  a r e c l o s e l y r e l a t e d t o t h e amount  big profits  brokerage  scale  they  do.  c a n be r e a p e d of large  a squeeze  from  that  institutions;  orders  on p r o f i t s  showed  handling  financial  so c a l l e d r e t a i l  has caused  The s t u d y  by  small  and i n  52 some  cases  the lack  of  profitability.  "Small deals c a l l e d c o s t l y f o r broker," and M a i l , May 1 4 , 1 9 6 9 , p . B l . 51  Toronto  Globe  Ibid.,p.Bl.  52 " S t u d y shows where b r o k e r s p r o f i t a n d M a i 1, A u g u s t 1 , 1 9 6 9 , p . B I O .  most", Toronto  Globe  104  There of  seems  executives  community mutual  economical and  be  very  working  that  fund  to  the  i n the  small  and  Firstly, have  we  Canadian were a  tasks  observed  directly  or  mutual  said  t o be  development  and  a marked  fund  of  of  a  on  the  more  entering  into  SUMMARY  were  accomplished  that  three  indirectly  an  rely  them w i t h  method  minds  e q u i t i e s markets .  IV.  major  i n the  financial  investors will  beneficial i n the  doubt  Canadian  i n d u s t r y to provide  remaining  Two  little  predominant  aided  industry.  increase  the These  of  the  three  factors  net  savings,  sophistication  for saving  Chapter.  factors  growth  i n personal  financial  preference  in this  through  by  savers  financial  institutions . I n more has  been  Canada a  a high  since  growing  inflation  to  those  which  channels was  by  and  of  other  i t was  Combined by  of  with  individuals  has  suggested  rates  terms,  increasing rate  1957.  provided banks  and  concern  of  It  specific  shifted  saving  that  that  equity  return higher deposit  there  of  in  savings  this,  there  the  harmful  of  the  shown t h a t  flow  can  of  compensate  accepting  those  effects  savings  i n v e s t i n g has  than  is  best. historically  offered  institutions.  105  And  the groups  shift  capable  i n the attitude  benefits  of equity  dealers,  mutual  end  investment  their  was to  A second  major  task  their  h i s degree  was  concluded  aggressive  determine  financial  was  institutions  t o be q u i t e  class  supply  structure  small  where  a n d why  some  f o r some  investor  has become when  It fairly  up a  necessary  investing  increasingly Canadian  f o r Canadian  through popular  investors  An a n a l y s i s  of the investing  scale  time.  i t became  indirect  of  public,  the  equities,  and  community answers.  financial  This  are a c t u a l l y  why  provided the  Chapter  sophistication.  of the f i n a n c i a l  investor  decided  others.  sophisticated.  o f , and demand  attitude  over  established  the reasons  through  i n this  and have been moving  sophistication  closed-  accounts.  savers  Canadians  recent years, especially  appear  the  of f i n a n c i a l that  this  funds,  by s t u d y i n g t h e C a n a d i a n  investors  financial Once  preferred  investment  companies  saving i n the past  were  of the  reaping the  pension  accomplished  o f d e t e r m i n i n g how  channel  the  and t r u s t  and agency  and  the  were  trust  that  advantage toward  trusteed  companies,  accomplished  in  investing  funds,  was  to  of savers  estate,  institutions  of  of taking  toward  the  106  Briefly, amount to  exceed To  for  t h e new  further  and  a growing  devote and  more  the e q u i t i e s  from  this  the  the small  funds  time  the  with equities  market.  best  suited  f o r h i s investment  with  higher brokerage  charges  dealers to  large  developments,  h i s investment  markets  indirectly  The m u t u a l  fund  clients  attractive  played  fund package  the  through  network  has been  participating  financial benefited  by  providing  package d e s c r i b e d  In a d d i t i o n , an a c t i v e  by  has  approach  investment  small  approach  industry  investment  aggressive distribution mutual  f o r him  investor's opportunity  to t h e i r  of these  have  limited  combined  f o r investment  the previous chapter.  mutual  a  accounts.  alternative  extremely  be  f o r Canadian  entering  contend  has a l t e r e d  institutions.  an  supply  of their  a result  investor  in  o f t h e demand  tendency  institutional As  the  of the wealthy,  worsen  he m u s t  t h e r e may  of concentrated holdings of  purchasing securities  programme  in  tendency  that  common s t o c k a v a i l a b l e  i n because  i n t h e hands  growing  to  shown  of desirable  invest  stock a  i t was  role  Canadian i n developing  through marketed.  which  CHAPTER  GROWTH P O T E N T I A L  The provided the  tasks  financial  other  future  lies  Although benefited too  have savers  from other  that  demand which  counselling services to  demand  from  will  savings  fund  the harmful  fund  that  demands  invariably  in financial  range  was  given  industry  can meet t h e  with  a broad  rates  greatly  by s a v e r s ,  levels seek  investment  intermediaries  demands.  amount range  Secondly,  of  of  o u t and  of of they  The  inflation.  first  services, investment financial will  of return to protect  effects  so  financial intermediaries.  of f i n a n c i a l  a greater  one r o o f .  higher  as  insight  i n d u s t r y has  two i m p o r t a n t  include  under  some  t o move t o h i g h e r  they  along  funds  for investing i n  p r e v i o u s l y mentioned  i s f o r a wider should  behind  savers.  the changing  can s a t i s f y  chapter  factors  mutual  of the mutual  institutions  continue  their  i n Canadian  the mutual  'sophistication invest  ahead  of  influential  In a d d i t i o n ,  financial  demands  MUTUAL FUNDS  i n the previous  institutions  instruments.  t o what  and  As  o f some  increasing interest  equity  CANADIAN  accomplished  a coverage  principal  as  FOR  V  continue  themselves  108  The market  point  at present  institutions broad this it  that  reached  i s one i n w h i c h  are scrambling  range  of f i n a n c i a l  scrambling  will  has been  process  inevitably  i n order  that  be f a i r l y  the  they  can provide  equally  can  provide  higher in  apparent  a complete  rates  terms  of  range  expanding  their  maintaining  growth  a position  and t h e i n n o v a t o r  accordingly.  I t was s u g g e s t e d  services  come  this of  innovation,  There  a r e two a s s i g n m e n t s  the factors  new  will  innovations  The f i r s t ,  will  which  of the mutual  fund  industry  significantly  factors  to the future  changing  preferences be  rewarded  f o r the instruments  create  new  be t o m e n t i o n  favourably  these  limited  may demands.  t o be c o m p l e t e d i n  will  well,  successful  institution  which  a l l goes  with  i n the introductory  by a f i n a n c i a l  through  chapter.  along  satisfying  preferences  about  growth If  offered  However,  that  i s n o t , however,  may b e c r e a t e d  and  i n terms o f  t o be m o s t  of merely  IV, that  financial  assets.  Through  of Chapter  that  clients.  of services prove  a  years,  institutions  preferences.  section  matched  to their  those  will  future  i n future  evenly  of return  Insuring to  that  Assuming  the successful  will  is  financial  to provide  services.  institutions services  the major  continues  mean  i n the f i n a n c i a l  influence the i n the future.  should  growth  some  contribute  of the industry  109  because future the as  i t i s presently demands  changes  of savers.  taking  i tprepares  words, has  growth  A logical  and  growth  technological  changes These  will  result  a further  savers  development,  and t h e wants  is  suggested  in  a strong  to  other  the  that  position  financial  expected  orientated  along  funds  presently  these  changes,  to  show  is  innovating  that  social  the extent  the obvious  of  of  It  will  i t s growth because  be  relative  many o f  changes a r e  of the services  many  O n c e we h a v e  seem r e a s o n a b l e the mutual  o u t o f new d e m a n d s  changes  individual  industry  to capitalize  social  the mutual  i n the level  fund  to offer.  t o which  of the factors  of borrowers.  to maintain  i n order  may u n f o l d  shift  and needs  i t would  intermediary.  and t e c h n o l o g i c a l  and t e c h n o l o g i c a l  have  i t s rapid  to benefit  i n the attitude  the lines  industry  the industry  i n an a n a l y s i s  intermediaries  social  fund  as a f i n a n c i a l  likely  the mutual  discuss  In other  i s to introduce  industry.  economic  the mutual  to insure  point  fund  from  i s to  at the steps  position  starting  future  t o meet t h e  f o r the future.  be t a k i n g  and r e l a t i v e  assisting  within  want t o l o o k  and w i l l  prepared The s e c o n d  place  itself  we w i l l  taken  well  mutual  reviewed  t o attempt fund  industry  on t h e b u s i n e s s  i n t h e economy.  110  I. C A N A D I A N MUTUAL FUNDS AND S O C I A L AND T E C H N O L O G I C A L CHANGES The funds  past  i s a matter  and t h e i r  matter  of concern.  technological the  expected  arrives what a  single  Given  both  knowledge events  may  that  As  factors industry  may  benefit  that  no i n d u s t r y event  the near  Canadian Contracts.  still  Committee  to peer  possibly newly  ahead.  happen  i n the  introduced  influence  mutual  upon t h e  fund  industry  to outline  numerous  the future  much  growth  t o be d e s i r e d i n  f o r the mutual  i s the reporting on M u t u a l  of the  institutions.  o p e r a t e s i n a vacuum.  future  i n mind i t  place.  leaves  i n store  of  i t i s possible  v i s - a - v i s other financial  procedure  a major  a tremendous  i t i s possible  This  in  this  of knowledge  f a r as t h e C a n a d i a n  that  usually  the future  and f a s c i n a t i n g  a c t u a l l y take  concerned,  and  accelerating,  even  Yet, bearing  as t i m e p a s s e s  have  greatest  No o n e c a n s a y f o r s u r e  p r e d i c t i o n s 'of w h a t m i g h t however,  the  social  the unexpected)  i n the future,  fruitful  mutual  i s now  are constantly  of time.  a f a c t u a l body  make  i n the future  with  industry.  future;  is  (along  i s i n store  The  In a world i n which  changes  ahead  remains  to  growth  of record.  Funds  For fund  example,  industry  by t h e F e d e r a l - P r o v i n c i a l , and  Investment  Ill Obviously by  this  for  the l e g i s l a t i v e governmental  the future  fund  industry  the to  small  the major  or unitholders  investor  who  developments  lower  earners*  the  higher  income  a policy will hands  fund the  As are  proportion has been  lacks  a large  savings.  i n Canada  amount Most  keeping  of  capital  recent  economic and  at increasing those i n  contribute  to increase  t h e income i n  of the people  Such  most  likely  t o buy mutual  Some o f t h e s e  people  have  t o save  any money,  of their  long-term mutual  concerned,  meaning  that  shareholders  i ti s also  i n greater  force  will  be i n s t r u m e n t a l  with  possible  that  mutual  funds.  (under  $10,000),  either  inhouse  this  whereby  d i r e c t investment  mutual  could  income they  be  The trend.  by s m a l l  stockbrokers The firms  accounts  accounts  funds.  classes  will  brokerage  and d i r e c t i n g t h e s e  or external  they  eventually  or unitholders.  i n developing  i s now d e v e l o p i n g  discouraging  invest  a d d i t i o n a l income w i l l  savings, fund  never had  l e t alone  f a r as i n d i v i d u a l s i n t h e m i d d l e  situation  of funds'  and s t i l l i s  a r e aimed  income w h i l e  join  are  of the mutual  level.  A portion  potential  implications  a t t h e same  opportunity  into  tremendous  groups  shares.  it.  have  t o b e made  i n Canada.  the  the  could  and development  a l l o c a t e to long-term  social  go  body  growth  Historically, shareholders  recommendations  toward  112  The  high  account  administration makes  brokerage The market and  place  funds.  convince  a greater  number o f a v e r a g e  of professional  advantage  investing  funds,  as w e l l more  as a t o o l  to turn  will  and more  never  intelligent  take  the place  decision,  is  that  and  doubt  c a n be e n o r m o u s l y  investment  manager.  methods  f a r more  research  earnings,  held  will  sophisticated  to the well  change.  trained  Information  and q u a n t i f i e d .  probably  theory  there  will  Investment  be m o r e m a t h e m a t i c a l l y  will  dividends,  be u s e d  orientated.  i n the prediction  and g r o w t h  o f companies  i n the funds p o r t f o l i o s . As  changes  the character  of Canadian  as t h e r e s u l t  of the technological  financial and  helpful  of  As a c o n s e q u e n c e , f i n a n c i a l  refined  will  Probability of  i t scareful  use  analysis.  i n an i n v e s t m e n t  little  management  as o t h e r f i n a n c i a l  for portfolio  t h e c o m p u t e r may  to  increase  human j u d g e m e n t  be  for  i n the  The  are making  the computer  research  investment  unprofitable  investors  Mutual  institutions  use  an  sophisticated  do-it-yourself  sharply.  Although  accounts  financial sophistication  will  fairly  vis-a-vis  of  small  of operating  firms. growing  even  mutual  most  costs  analysts  technically  questions  will  have  orientated  and A m e r i c a n  t o become  i n order  of the corporations  they  industry  revolution,  f a r more  scientifically  to ask the r i g h t analyze.  113  It  is quite  c o n c e i v a b l e to imagine  to  employing  economists,  researchers, research  back  data  up  systems the  portfolio  In  brief,  more p r e c i s e  and  this  the  will  them w i l l which  by  within  which  changes buy  children do  they  today,  education  fund  with but  as  funds  i n the  mutual  their  so  much  A  will  to  so  that be  the further investors odds  for  savings to a mutual  fund  objectives. t r a n s f o r m the  There  may  be  great  invest.  shares  not  merely  to provide  e d u c a t i o n , as  to provide themselves  methods  environment  people  life.  in  solution  why  in  that  risk-reward  reasons  a university  later  decisions,  invests  the  the b u s i n e s s  operate.  better  many p r i v a t e  logical  investment  and  have  management w i l l  their  these  will  who  convinced that  to a l l o c a t e  mutual  specialists  for valuable  superior  result,  too high.  such  be  h i s own;  a direct  are  satisfies Changes  used  on  As  be  operations  investment  individual  of p r o f e s s i o n a l  them  hire  financial  o t h e r such  managers  inevitably  p r o b a b l y become  against  and  search  f o r making  average  stock market  dramatized.  and  in their  fund  data  to the  advantages  also  addition  companies.  data w i l l  available  analysts,  mutual  and  will  in  mathematicians, behavioural  managers  on  statisticians  funds  specialists,  scientists, to  mutual  that  with  social  Individuals  many  may  their Canadians  additional  114  This  c h a n g e may  technological for  in- p a r t  advancement  h i g h l y educated  invest  i n mutual  living  after  more of  and t h e demand  people.  funds  educational  not to provide  standard  a l l such that  are based  one's  capital  of l i v i n g  the basic will  with  change.  others'  i s g e n e r a l l y supported  on M o n e y  developments, i t  will  ahead.  fund  range  mutual of  pooling  and p u r c h a s i n g p r o f e s s i o n a l  i n the years  f o r mutual  and a wide  The p r i n c i p a l  more  Commission  also  marginal  i d e a upon which  and d i v e r s i f i c a t i o n  prospects  may  facilities.  conceivable  management  belief  a  of  by i n d u s t r y  So t o o , p e o p l e  and r e c r e a t i o n a l  funds  sense  a combination  y  comfortable  unlikely  from  r e t i r e m e n t , b u t t o make p o s s i b l e a f a r  Despite is  stem  make  This  even  optimistic  by a summary  growth  prepared  of the f o r the  and C r e d i t i n t h e U n i t e d  States.  "The t r e n d i n i n d i v i d u a l a n d i n s t i t u t i o n a l f i n a n c i n g i s s t i l l t o w a r d more e q u i t y i n v e s t m e n t , " t h e C.M.C. declares. Moreover, the fund i n d u s t r y " i s i n a s t r o n g c o m p e t i t i v e p o s i t i o n t o o f f e r most economically the b a s i c investment advantages of d i v e r s i f i c a t i o n and p r o f e s s i o n a l management... The i n d u s t r y h a s d e v e l o p e d many i n v e s t m e n t s e r v i c e features not r e a d i l y a v a i l a b l e i n other investment media." Before mutual  funds  proceeding  a r e b y no means  They  will  they  certainly  investors.  i t should  not supplant  other  be e m p h a s i z e d  appropriate types  do n o t r e p r e s e n t  f o r everyone.  of savings  a panacea  that  and  for a l l  115 Nor  i s there  popular funds from and  misconception  can completely investing  bonds,  funds,  aspects wide  to benefit discussion  fund  II.  MUTUAL  Changes Canadian  t h e demands  need  and want  others  In of  Canada,  investors  obj e c t i v e s .  an i n c r e a s i n g l y  the mutual  fund  section  to provide  place  will  industry  be  concentrated  within the  investors  taking  industry.  package  and  financial  the other  through  with  a broad  Certain  portfolio;  want  only  funds  funds  within the  with  others  long-term  have  result  investors  Some  out speculative  the mutual  by o f f e r i n g  place  of s e c u r i t i e s .  others search  PROCESS  Some c h a n g e s  of investors.  income;  mutual  services.  fund  immediate  through  o f any w e l l - p l a n n e d  taking  a conservative  adventurous  still  i n stocks  considerably.  are constantly  from  an  Investing  FUNDS AND THE I N N O V A T I O N  mutual  mutual  of risk  program,  process  of f i n a n c i a l  a n y way  of developing  that  a  the element  i n the next  industry  despite  or i n d i r e c t l y  part  of services,  the scrambling  range  only  of a f i n a n c i a l  likely  mutual  eliminate  I t i s i n the area  The on  to the contrary,  directly  remain  range  future,  in securities.  either  will  program.  is  i n the foreseeable  require need appreciation  investments.  met s p e c i f i c  different  demands  investment  116  As  t h e number  themselves  along  spectrum". mutual more  funds.  expected  he n e e d s  individual  of  h i s savings  providing this  "risk-reward  end a r e funds  conservative  that  are  funds  been  have  industry  challenge  counselling. industry  investors  leave  one r o o f , the  Thirdly, i s adopting  f o r higher  fund  I will  Canadian developments States.  attempt mutual  an i n t e g r a t e d I will  discuss  of return  line  indicate the  industry  to s a t i s f y  rates  t h e more  the developments  i n the area  I will  services  the Canadian  Secondly,  qualified  financial  i n the United  to provide  mutual  of  organization  the greatest place  result  financial  as f a r as  the steps  services.  line  The more  with  notable  has t a k e n  better  future,  the  Although  taken  the Canadian  becoming  with  i n perspective,  o f a l l t o show  financial  under  are concerned,  years  the industry,  i n a p o s i t i o n to  i s obvious.  services.  have  within  of being  investor  he w i l l  such  area  recent  first  the  arranged  are the  an i n t e g r a t e d  can o b t a i n  To p u t t h i n g s  in  a  i n the near  advantage  an i n d i v i d u a l  an  of  called  place  place  to provide  The  assistance  mutual  taking  to take  attempts  provide  fund  be  At the other  changes  services.  in  what m i g h t  have  venturesome.  from  in  m u l t i p l i e d , they  A t one e n d o f t h e s p e c t r u m  Other or  of funds  of  faces financial  the measures  t h e demand on t h e i r  by capital.  117  Financial It  Complexes  i s certain  that  the expanding  will  intensify  financial  services  financial  intermediaries.  have  t o compete  with  without.  Life  up  At  a more  aware  advising  fund  the  being  reason  more  that  mutual  This  of arrangement  a  than  they  "mutual  complex  fund  funds  that  one m u t u a l  than  enables  from companies, opening  management fund  are i n  those managing sales  different  are  By way fund  an concerned;  to  potential  investment  was p r e v i o u s l y  a mutual  area  are able to offer  with  complex".  a g a i n s t an  and t r u s t  as f a r a s p o t e n t i a l  investors type  this  not only  planning.  i t i s apparent  favourable position  individual  will  of the o p p o r t u n i t i e s  of f i n a n c i a l  the outset,  companies  entering  i n s u r a n c e companies  are well  i n the area  funds  one a n o t h e r , b u t a l s o  number o f f i r m s  example,  c o m p e t i t i o n among  Mutual  increasing  for  market f o r  defined  objectives. as  o f summary, a m u t u a l  adviser  broader  of potential  each  an o p p o r t u n i t y t o a p p o r t i o n h i s a g g r e g a t e  mutual  fund  investment  objectives. a  fund  funds  Most  complex within  also  among  obvious  all  funds  along  the  potential  several  funds  offer  with  shareholders of a mutual have  the complex  The  and t o  a  cross-section investor  investors  to reach  the option  advantage  of being  the "risk-reward  investor  can f i n d  within  to other  o r no s a l e s  able to  spectrum" under  different  fund  to switch  at a reduced  fund  offer i s that  one r o o f  charge.  118 a  fund  or  funds  investment Canadian  Each  completely  needs.  mutual  In  fund  2.  United  3.  A.G.F. Management  4.  Capital  5.  Canadian  A  Investors  these  clear  five  funds  Channing  indication to  financial  planning  offer can  e x t r a c t e d from Channing  of  cited  particular the  as  largest  follows:  Ltd.  Ltd. Ltd. Corporation  management with  own  Group  Management  have  Canadian  were  Funds Management  companies  comments  to h i s  I I I , five  complexes  The  more m u t u a l  by  Chapter  1.  of  suited  Ltd.  companies  different  offer  investment  two  objectives.  of  e x a c t l y what v a r i o u s  to  the  be  p u b l i c i n terms  observed  by  a standard  Corporation  or  reading  newsletter  management of  the  following  circulated  Ltd.  "As w i t h m o s t M u t u a l F u n d s , t h e p r i n c i p a l o b j e c t i v e s of the t h r e e C a n a d i a n C h a n n i n g Funds i n c l u d e the maintenance of s t a b l e income, the growth of c a p i t a l i n v e s t e d and t h e s a f e t y o f i n v e s t m e n t s f r o m s e r i o u s decline in value. However, these o b j e c t i v e s are t o some e x t e n t m u t u a l l y e x c l u s i v e , t h a t i s , i n o r d e r t o g i v e p r i o r i t y t o one o f t h e o b j e c t i v e s , t h e e m p h a s i s on one o r b o t h o f t h e o t h e r o b j e c t i v e s m u s t g e n e r a l l y be d e c r e a s e d . Each of the t h r e e Channing F u n d s p l a c e d i f f e r i n g d e g r e e s o f e m p h a s i s on e a c h of these o b j e c t i v e s . Thus, c e r t a i n c l a s s e s of investors with particular objectives w i l l prefer one t y p e o f f u n d t o t h e o t h e r s f o r an a d d i t i o n a l commitment. W i t h t h e f o r m a t i o n o f t h e new Venture F u n d , e v e r y p o t e n t i a l i n v e s t o r c a n now f i n d a C a n a d i a n C h a n n i n g managed f u n d or funds completely s u i t e d t o h i s own p a r t i c u l a r situation."  119  "The C o m m o n w e a l t h F u n d i s a " b a l a n c e d " t y p e o f Mutual Fund, which, because of the c h a r a c t e r ofi t s d i v e r s i f i e d investments acting i n concert, provides a h i g h degree o f s e c u r i t y and a s t a b l e r a t e o f c u r r e n t income t o i t s s h a r e h o l d e r s . A t t h e same t i m e u n l i k e the s i t u a t i o n w i t h f i x e d d o l l a r r e t u r n , investments s u c h as C a n a d a S a v i n g s B o n d s , s h a r e h o l d e r s p a r t i c i p a t e i n t h e g r o w t h o f t h e economy t h r o u g h t h e c a p i t a l a p p r e c i a t i o n of the fund's investment portfolio, a l t h o u g h t h i s g r o w t h p o t e n t i a l i s n o t n e c e s s a r i l y as g r e a t as i n t h e l e s s c o n s e r v a t i v e f u n d s . The Commonwealth Fund i s , t h e r e f o r e , d e s i g n e d f o r i n v e s t o r s who d e s i r e e q u i t y i n v e s t m e n t a n d i n c o m e t o c o m b a t i n f l a t i o n a r y p r e s s u r e s , b u t who w i s h t o be a s s u r e d t h a t t h e i r i n v e s t e d c a p i t a l w i l l n o t be s e r i o u s l y d e p l e t e d e v e n on a t e m p o r a r y basis." "The L e v e r a g e F u n d i s commonly r e f e r r e d t o as a "growth" fund, that i s , i t sprimary o b j e c t i v e i s long term c a p i t a l growth. This fund should, t h e r e f o r e , be o f i n t e r e s t t o p e r s o n s who a r e w i l l i n g to a c c e p t a h i g h e r degree o f v o l a t i l i t y i n t h e i r investment i n order t o achieve a h i g h e r growth p o t e n t i a l , b u t a t t h e same t i m e , a r e n o t i n t e r e s t e d in a highly speculative investment."  "The V e n t u r e F u n d i s d e s i g n e d w i t h a b o l d e r a n d more a g g r e s s i v e i n v e s t m e n t p o l i c y t h a n e i t h e r o f t h e o t h e r two f u n d s . I t s a i m w i l l be t o a t t a i n above average a p p r e c i a t i o n o f c a p i t a l w i t h i n r e a s o n a b l e l i m i t s by e m p h a s i z i n g i n v e s t m e n t s i n t h e h i g h e r g r o w t h segments o f t h e economy and i n c o m p a n i e s w i t h new i d e a s a n d t e c h n o l o g y , i n c l u d i n g smaller companies. The p o t e n t i a l f o r c a p i t a l g r o w t h w i l l be t h e s o l e b a s i s f o r s e l e c t i o n o f p o r t f o l i o s e c u r i t i e s and i n t h e v a r i a t i o n s i n t h e l i q u i d i t y o f t h e Fund. The V e n t u r e F u n d i s c o n s e q u e n t l y a i m e d a t t h e i n v e s t o r who i s w i l l i n g t o , and can a f f o r d t o , t a k e g r e a t e r r i s k i n o r d e r to seek h i g h e r a p p r e c i a t i o n o f h i s i n v e s t e d capital." The special  Canadian reason  literature in  clear  Channing  other  expressed terms.  than  example the fact  was  chosen  that their  the objectives  of t h e i r  f o r no sales funds  120 A  review  of  the  organizations Quite mutual  desires in  moving  by  the  the  complexes  are  able  to  into of  a  services  with such  reference other  the  which the  sale  of  we  being  complex  of  "financial  becomes  institutions the  in  This  process  observe  would  offered  planning.  fund  of  areas  companies  the  of  successful  other  insurance  as  larger  range  been  presently  financial  of  for  The  of was  financial  sometime  Investors  as  a  development  complexes  and  is well  Group  and  intermediaries. Investors  business  at  investment  that  been  illustrated  This  group  of  Canada,  i n Manitoba  in  of  parent  the  U.S.  Diversified Services,  business  has  i t s association  Syndicate  incorporated  Canadian  Investors The  a broad  These  termed  presentation.  complex."  financial  Minnesota. the  to  several  also  financial  scrambling  successor  handle  and  of  other  i n Canada  company,  of  the  development  Limited, to  areas.  of  fund  o f f e r a number  to  have  When a m u t u a l  "financial  evident  with  they  is generally  of  geared  other  o v e r a l l process  The  is  funds  t r u s t companies  result  by  of  mutual  a s i m i l a r type that  investors,  associated  other  fact  scrambling".  of  reveal  the  the  many  movement  of  from  types  of  include  would  apart  fund  different  literature  time  contracts.  Inc.  consisted  1940  of  Minniapolis,  only  121 In  1950,  Investors  a mutual for as  which  Investors  of 1968, Canada In  the  issuance  Syndicate was  Inc.. company,  After Canada,  was  also  acts  Mutual Ltd.,  group  The  and  The  called  i s held  from  as  all  three  stock  Investors  investment  The  and  1961  of investment their  3 1 , 1968  were  i tis  exchanges. Syndicate  Fund  company  Canada  of  two m u t u a l  objectives  $441,281,474.  of  Fund L t d . .  r e s p e c t i v e l y to  total  and  f o r Investors  Growth  latter  company  Syndicate  contracts  company  aggregate  Services,  G r o u p , a new  i s t h e management  funds.  i n 1957  range  shareholders; December  and  Group.  management  I n t e r n a t i o n a l Mutual  Group  company  Diversified  Investors  Ltd., Investors  mutual  created  sells  Investors  Investors  is a public  the d i s t r i b u t i o n  Investors  Investors  a broader  The  through of  latter  i n Canada,  Investors  Group  as The  latter  Mutual  Services, Inc.  i n shares  i s l i s t e d on C a n a d i a n  Limited  acted  At the  of Investors  the r e o r g a n i z a t i o n of Investors  The  were  i n 1964  of Canada and  Limited  subsidiary  dividend  e s t a b l i s h e d u n d e r t h e name  Limited.  of Canada L t d . ,  company.  Diversified  Limited.  Investors  and  organized  $584,818,616.  of Canada,  The  net assets  of a stock  separately  Limited  of Canada,  of i t s Canadian  of t h i s  operated  Mutual  and d i s t r i b u t i o n  Investors  reorganized  Control  Syndicate  L t d . , were  itself  of Canada,  Investors  the t o t a l  1956,  divested  of  called  t h e management  end of  fund  Syndicate  funds provide  for potential  net assets  at  122 The  three  mutual  mutual  fund  funds  complex  Syndicate  Limited  shares  the  can to  of  offer other  and  sell  mutual  The  Group  It also  and  Provident  Mutual  of  company. net  aggregate  The  at  funds  Investors  operations  as  two  total  has  the Ltd.  mutual end  net  of  by  Group  also  Group  funds 1968  of  at  The  other  activities.  has  large  i n t e r e s t s i n a number  Figure  6.  can  be  observed  Stock  Fund  management  The  on  of  31,  1968  G r o u p was  trust Trust  in real  Group  for  $42,996,574.  Co.  $1,069,096,064.  Ltd., development  Investors  Canadian  and  of  company  estate  a d d i t i o n , The  Investors  investment  total  Group  and  issues  aggregate  December  carries  Investors  In  had  and  company  i s the  Investors  s u b s i d i a r i e s engaged  companies  as  financial  Savings  Provident  has  The  they  Group  other  Western  and  companies.  Investors  several  and  assets  managed  through  and  information  distribution  Investors  the  Investors  addition,  o r g a n i z a t i o n which,,  Fund  The  These  assets  mutual  acts  which  The  owns The  L o a n A s s o c i a t i o n , an contracts  by  of  contracts  In  considerable  largest  companies.  Investors  interests.  Ltd.  funds.  services provided  the  Salesmen  i t s investment  clients  i t s subsidiary  make up  i n Canada.  three  their  together  Group  public  i t s associated  in diagramatical  form  in  24%  Ownership  The  Investors  Group  i  l  Montreal Trust Company L t d .  I  WHOLLY OWNED 1  Inves t o r s Syndicate  " F a c e amount cert ificates "  Inves tors Group T r u s t Co. L t d . "Individual § Group P e n s i o n Funds "  Affiliated  Funds  Affiliated  The W e s t e r n S a v i n g s ct L o a n Association  i  Provident Fund L t d . "Balanced  Mutual Mutual Fund"  i  As s o c i a t e d 50% O w n e r s h i p i R.C. B a x t e rI The I m p e r i a l L i f e A s s u r a n c e Company Properties Ltd of Canada "Real Estate Has a 2 6 % i n t e r e s t Development i n The I n v e s t o r s Company" Group SUBSIDIARIES  Pooled Pension F u n d 1) F i x e d I n c . Fund 2 ) E q u . F  B r a m p t on Limited Shopping Centre Ltd . "Investment Certificates"  Rowcliffe Wes t f u n d Inves tments Ltd . Limited "Inves ts in attract i v e small e r compaies "  Northwest Mortgage CompanyLimite "Mortgage lending"  M u t u a l Funds  Investors Mutual of Canada L t d .  I n v e s t o r s Growth Fund o f Canada L t d Provident Stock Fund L t d . "Growth Fund"  Investors Internat i o n a l M u t u a l Fund Ltd .  FIGURE  6  THE I N V E S T O R S GROUP S U B S I D I A R Y AND A F F I L I A T E D COMPANIES  to  124  The further has  development illustrated  itself  that  been  covers  financial  of by  Canadian the  absorbed  a broad  by  range  community.  fact  of  life The  c o n t r o l s or  insurance  Investors a  substantial  active  i n the  Montreal of  Trust  Canada,  of  and a  interest  The  at  fund  assets  These  are  only  financial or  other  type  one  company  end  at  sold  of  Group,  is  the  for  net  Royal  Montreal  Trust  with  of  Company  RoyFund  Ltd.,  with  the  end  of  of  the  organizations associated  with  offer  or  a few complex  which  instruments,  financial  w i t h i n the  of  assets  Bank  p u b l i c i n 1967, 1968  contracts.  have  total The  has  Corporation  funds  is associated to  which  Power  aggregate 1968.  The  and  investment  i n both  which  Group  funds,  company.  insurance  both  Investors  had  Group,  competitive of  variable  this  mutual  trust  Investors  offers  and  the  first  net  units  The  interests  total  the  and  investment  other  control  Group  and  Limited,  Company, o f  is  complex  a closed-end  Company, i n w h i c h  Investors  mutual  of  Investors  economic  a major  i n The  complexes  financial  Canada,  and  development  participation  Canada, having  of  Assurance  interests,  $30,724,241  on  recently acquired  Limited  substantial public  Life  Group  large  The  is associated with  companies,  Great-West  that  Canada's  Based  company, Power C o r p o r a t i o n complex  a  financial  $9,811,064.  mutual and  fund  almost  service i s provided complex.  by  shares every at  least  125 Other the  financial  movement  interesting group  toward  financial provide  fully  example  professes  groups  Listed  mutual  auto  insurance,  funds,  mortgage  loans,  services  are provided  The the of  financial  indication industry to  complexes  the next  Financial It  for  subsidiary  represent  p r o v i d i n g a complete do, however,  that  appear  to attain  would that  give  range  a  clear  w i t h i n the normally  flow  the f i n a n c i a l  tremendous  asset  growth  Counselling  to take  c o n s i d e r i n g some  place  development  of mutual  These  b y no m e a n s  taking place  business  fund  of the developments  w i t h i n t h e i n d u s t r y as t h e b a t t l e  the investor's dollar  obvious  realtors,  years.  i s now w o r t h  expected  life,  management.  They  I t would  few  plans,  services,  described  o f t h e movement  are l i k e l y  savings  i n the o r g a n i z a t i o n a l structure  complexes  services.  competitors.  over  just  to capture  accounts,  they  7.  i n Figure  financial  one-stop  by a number o f d i f f e r e n t  a r e named  two g r o u p s  only  trust  This  the services  pension  and p r o p e r t y  which  illustrated  among  Another  Group.  a complete  and chequing  certificates,  active i n  integrated services.  to represent  are savings  companies  a l s o been  i s The C o l l e c t i v e  center.  and f i r e  have  will  salesmen.  becomes more f i e r c e . be t h e i m p r o v e m e n t  One  i n the  education  126  7  FIGURE THE SUBSIDIARY  C O L L E C T I V E GROUP AND A F F I L I A T E D COMPANIES  The JO.  ncipal Invess Corporation Corp . )  Collective  Principal Certificates Series Inc. (US C o r p . )  Group Collective  Securities  Ltd  1 First Investors Corporation Ltd  Collective M u t u a l Fund Ltd .  Associated Investors of Canada L t d . T  A t h a b as c a Holdings Ltd  A t h a b as c a M o r t g a g e Corp. Ltd T  T  Principal Assurance 1  erta Morte Exchange  RCE:  Files  i Imperial Real Estate Ltd.  o f The  Life Co.  i  Mercer § Williams Agency L t d .  Canadian Committee  Western I n d u s t r i a l Planning Associates Ltd.  on M u t u a l F u n d s  and  Investment  Contracts  127 Salesmen  will  securities  have  as  t o do much m o r e  t h e move t o w a r d  is  extended.  Along  with  of  financial  services,  personal  offering  they  will  financial  counsellors to their  on m u t u a l  fund  of  financial  matters,  will and  mutual  allowed  one  long  i n most  planning line  as  advising  and  other  by m u t u a l  them  aspects  will  be  Committee  This  changes  on M u t u a l  It is  States  in itself  t o be  Funds  now  but not will  suggested  and  a  insurance  allowed.  s t a t e s of the United  as y e t i n C a n a d a .  as  funds, i t  d u a l - 1 i c e n s i n g of  salesmen  o f t h e recommended  Canadian  to serve  clients,  scrambling  before  fund  officially  financial integrated  have  insurance  sell  believe, f o r instance, that  of f i n a n c i a l  n o t be  on  an  just  planning.  Many p e o p l e result  than  be  by  The  Investment  Contracts. In the  order  salesman  financially educated, fund but  next  will  also  newer few  have  a qualified  not only and  financial  t o become more  sophisticated.  business  planning. the  t o become  He  will  systematic have  i n the fundamentals  the r e g u l a t i o n s governing  will  selling years  t o be  of the  i n the c o m p l e x i t i e s of personal He  a l s o have  t o be  and m a r k e t i n g  will  probably  be  counsellor  well  and well  mutual  the i n d u s t r y ,  financial trained  techniques, a marketing  in  f o r the era.  128 Present  mutual  leave  much  often  although  will  the  from  should abusive  industries'  qualified Venture  A trend recent rates has,  an  sales  than  emphasis  looking  more  Because  performers  performance  will  mutual  industry,  fund  important  aspect  have  better  i n Canada i n  induced  f o r higher  placed  that  find  new  This  salesmen fund  to  trend sell  concept.  upon  rates  of  will  be  investors  at the superior  may  of the impact  t o become  of investors  being  i t c a n be e x p e c t e d  poor  force  Aspect  the mutual  return,  The  which, i f  but also  investments.  extent,  and more  training  advisers.  on t h e i r  rather  Committee  the investing  representative  i s the desire  increasing  protect  has d e v e l o p e d  to a certain  Fund  salesmen,  and  progressive  controlled  techniques  - Performance  of return  performance  fund  not only  sales  that  years  introduced  by t h e more  more s t r i c t l y  as f i n a n c i a l  Funds  criticized  I n a d d i t i o n , The M u t u a l  f o r a l l mutual  implemented,  techniques  been  are being  t o be i n t r o d u c e d  be r e c o m m e n d i n g  procedures  training  and have  improvements  organizations.  public  sales  t o be d e s i r e d ,  continue  will  fund  With  performers.  capital  hard  to  obtain.  t h e demand b y i n v e s t o r s f o r on t h e f u t u r e  growth  i t i s worthwhile  of performance  of the  reviewing  - the performance  one funds.  12g  The 1966. not  performance Convinced  a flash  siphoning mutual  with  acceptance return  had  very  (often  follow  shifting  over  were  were  i n fact of the major own  performance  a number o f t h e s e  objectives  that  contemplate the rate  t o as " v e n t u r e " f u n d s )  have  than  They  management p o l i c y  by  that  advantage  funds  enough  t r y to hold  tend  preferred  In senior  prices.  conservatively  to emphasize  frequently  of  stocks) to  i n common s t o c k and o t h e r  tend  frequently  markets.  of balanced  trading  also  i n the s e c u r i t i e s  debentures,  also  out stocks  greater opportunity f o r capital  fluctuations  funds  seek  or to stocks to take  (bond,  sharp  funds  the short-term.  balanced  managers  rather  a much  conditions  managed  they  i n order to increase  referred  t o bonds  securities  The  investment  a flexible  contrast,  offset  own i n  introduced their  the venture  t o have  special  their  considerable success.  appreciation to  and t h a t  introduction,  of risk  Basically, appear:;  into  t h e "go-go p e r f o r m e r s "  organizations  funds  of  came  o f f c o n s i d e r a b l e b u s i n e s s , some  Since their  mutual the  that  i n the dark  fund  funds.  funds  long-term  f o r short-term  growth capital  gains . The good, this but  venture  funds,  and sometimes they  have  i n some  been  cases  as m e n t i o n e d  excellent, assisted their  rates  above,  of return;  by r i s i n g  performance  have  stock  has been  frequently in  prices, considerably  130 higher  than  investing indices with  those  which  i n the equities  or  averages.  precision  be  classified  of  this  of  the success  which  on  Funds  Funds  prepared that net in  sales  recognized  mutual  market  should  funds, but f o rthe purpose accept  as  indicative the s t a t i s t i c s  and based  January  on a c l a s s i f i c a t i o n  The b r i e f  stated  1, 1 9 6 8 t o J u n e  venture  Committee  C o n t r a c t s by t h e Canadian  consultants.  of the five  through  to specify  funds  organizations  Association  f o rthe period  attained  s u b m i t t e d t o The C a n a d i a n  C.M.F.A. m e m b e r s h i p  net  form  and Investment  by t h e i r  sales  Canadian  of these  i n a brief  Mutual  that  one m i g h t  contained  have been  It i s difficult  as v e n t u r e  discussion  Mutual  would  funds  totalled  then  30, 1968,  included  $51.8 m i l l i o n ,  o f a l l o t h e r member m u t u a l  funds  were  while only  53 $4.1 to  million.  which  public. are  These  figures  clearly  venture  funds  have  The f i v e  funds  included  named  been  show  the extent  a c c e p t e d by t h e Canadian i n t h e C.M.F.A.  membership  i n Table X I .  The C a n a d i a n C o m m i t t e e on M u t u a l F u n d s a n d I n v e s t m e n t C o n t r a c t s was s u b s e q u e n t l y a d v i s e d t h a t c o r r e s p o n d i n g f i g u r e s f o r t h e e n t i r e y e a r 1968 were $105.2 and $102.3 million respectively. However, d u r i n g t h e second h a l f o f 1 9 6 8 , AGF S p e c i a l F u n d L i m i t e d was o r g a n i z e d a n d r a i s e d $ 6 0 m i l l i o n on t h e b a s i s d e s c r i b e d i n the r e p o r t . I t w o u l d be a p p r o p r i a t e t o t r e a t t h i s as a v e n t u r e f u n d , w h i c h w o u l d c h a n g e t h e l a t t e r f i g u r e s to $165.2 and $42.3 m i l l i o n respectively.  13a TABLE SPECULATIVE  XI  C A N A D I A N MUTUAL  O F F E R E D TO THE  FUNDS  PUBLIC  NAME OF FUND  DATE ORGANIZED  MANAGER  1. All-Canadian V e n t u r e Fund L t d .  Capital  2.  Canadian Channing V e n t u r e Fund L t d .  Canadian Channing Corporation L t d .  April  2/68  Spec  Les Placements Collectifs Inc.  April  25/67  United Venture Fund L t d .  U n i t e d Funds . Management L t d .  Dec.  31/66  T a u r u s Fund Limited  Planned Investment Management L t d .  3. 4. 5.  Fund  SOURCE:  Recent  Although venture mutual funds  fund will  assets,  i ti s quite  rapidly  move  t o h i g h e r zones  type  of investment  popular. funds an the  by t h e i r  anticipation  Venture  16/67  April  18/66  assets of a l l the portion  possible  i n the years  of financial  alternative  The a l m o s t  services  total  represents only a small  grow  Jan  Prospectuses  the aggregate  funds  Management Ltd .  ahead.  may b e c o m e  managers  have  fund a very  As  this  of venture indicates  utilizing  f o rthe f i r s t important  Canadians  extremely  clearly  of aggressive investors  of a mutual  these  sophistication  o v e r n i g h t development  respective  funds  that  of total  time.  role  to play  13?  by  providing  they is  early  new  what  I t i s worth  companies  have  innovation  a new  future  growth  From draw  that  on, i t i s s t i l l  happen.in  this  the best  most n e a r l y  a venture  available that  may  viewpoint,  conclusions  The i m p o r t a n c e  on t h e t o p i c  concept,  performing satisfies  i t i s very  mutual  since fund  h i s personal of rate  f o r many  a competing  the desire  i n the pursuit  A considerable carried mutual is  the  fund  time  performance,  will  the r i s k s  a specific  rate  o f academic time  have  to assessment  i s obvious.  of risk  of return. work  i s being  on t h e s u b j e c t  but l i t t l e  of this  use t o the average  as r e s e a r c h  investor  against to  out at the present  to the  consideration i s  the degree  of a high  amount  yet of p r a c t i c a l  such  to limit  of performance.  of return  But  investors  difficult  investment  made b y o r f o r a n y i n v e s t o r  accepted  their  i s t h e one  performance  -  that  fund  enhance  of  present  area  s t r e s s i n g , however,  to offer  i s a subjective  objectives.  of performance  position.  any s t r o n g  investor  able  the investor's  Performance  will  f o r whom  the concept  and i s c a t c h i n g  to predict  the future.  to investors  Although  management  to  service  are appropriate.  relatively  too in  a valuable  of  research  investor.  Until  c a n be p u t t o p r a c t i c a l u s e , t o weigh  involved  investment  the expected  i n allocating  vehicle.  benefits  h i s money  133 It  i s impossible  be  able  t o meet  t h e demands  returns  because  of-the  It  i s possible,to  taking  place  changing in  to state  a favourable  of  other by  has become  demand  environment,  mutual  they  will  seek  best  able  t o meet  demand under and  will  demand  mutual  financial  to  demands will  new  through  i n our  rates  more  sophisticated  that  The  i n the past  The  first  services counselling  second  on i n v e s t e d  as w e l l  have been  are  investment  of return  as a f e w  successful  and a r e  in anticipation  I t was  suggested  social  and  capital. other  in  continuing  of the  that  increasing  serviced  of f i n a n c i a l  services.  success  attract  the market  include  industry,  society.  funds  with  should  demands.  range  would  services  of savers.  develop  changes  demands  coupled  become  financial  intermediaries,  these  provide  fund  the  the remarkable  institutions  of f i n a n c i a l  i s f o r higher  The  meeting  range  into  investors  This  with  put mutual  investments,  f o r a wider  one r o o f .  operations. the developments  industry,  out f i n a n c i a l  be  a broad  fund  their  f o r higher  combined  will  will  position.  institutions As  funds  SUMMARY  f o r equity  funds.  that  i n e v i t a b l e that  mutual  financial  of t h e i r  the i n d u s t r y ,  performance  the Canadian  public  by i n v e s t o r s  nature  III.  It  a l l mutual  s a y , however,  within  financial  that  new  technological'  future demands  134  It  was  will  also  be i n a s t r o n g  relative many are  suggested  to other  b y some  On  a social  income in  as  group  this  will  likely  From  turn  rise. have  of  average  to  turn  to mutual  offer  competent  fairly  funds.  professional financial  fund  investment side,  will  to form  Mutual  funds.  people  of  continues  and  investment t o be  the growing  convince  presently  save  discouraged.  sophistication  a greater  sophisticated funds  following  number  investors are favoured  management b a c k e d  analysts  changes  of the lower  time  an o p p o r t u n i t y  to the mutual  and even  because  mutual  level  For the f i r s t  markets  growth  of the services  t h e income  the t e c h n o l o g i c a l  the f i n a n c i a l  its  and t e c h n o l o g i c a l  the lines  direct  in  to maintain  industry-  intermediaries  social  basis  may  scale  fund  o f t h e more p r o g r e s s i v e  will  group  small  they  financial  along  provided  the mutual  position  of the expected orientated  that  up b y  modern  because  highly research  techniques. Although to  favour  fund for  i t was  the industry by o t h e r  scrambling The challenge  of these  the future  industry,  outdone  of  many  also  financial  fund  on t h r e e  financial  growth  new  stressed  complexes,  that  i n order  continue mutual  i t i s essential  to avoid  institutions  who  being  are also  business.  industry  major  will  of the Canadian  to innovate  to capture  mutual  factors  i s meeting  fronts:  this  future  the development  t h e movement  toward  improved  13.5  financial  counselling,  of  fund  mutual  and by o f f e r i n g  geared  toward  a new  type  generating higher  investment  returns . We  saw  that through  institutions, of  financial  mutual broad or  fund  certain  mutual  complexes.  other  h a v e become  services  either  financial part  the f i n a n c i a l  of p r o v i d i n g savers  of f i n a n c i a l  terms  of f i n a n c i a l  industry  i s attempting  to  serve  as f i n a n c i a l  by  advising In  them  the area  introduction funds  with  complex  with  a  a  directly  return  as  Canadians  those  we  objectives  of r i s k  continue this  i n order  of  observed  Basically, that  type  I t was  attractive.  can o f f e r  growth.  the recent they are  contemplate  suggested  of investment  more  planning.  to increase the rate  t o move t o h i g h e r  increasingly  i n terms  customers  of performance funds.  fund  i t s representives  of f i n a n c i a l  organizations that  benefit  the mutual  on a l l a s p e c t s  to the investor.  sophistication become  to train  of venture  acceptance  counselling,  counsellors to their  investment  of  to  with  indirectly. In  the  funds  Through  i s capable  range  association  that  zones  of  vehicle  financial  will  tend  Accordingly,  a venture  fund  will  CHAPTER V I  SUMMARY AND  The The as  Canadian  to observe  the  industry  in  operating  this  examined  i n the Canadian  e x a m i n a t i o n i t was  f o ri t s tremendous  some o f t h e f a c t o r s  which  to maintain i t s relative  first  purpose  basic market  METHODOLOGY  growth should  growth  possible s i n c e 1957  assist  position  undertaking necessary to accomplish  outlined  and t h e r o l e  above  was t o g i v e  of financial  to provide  a departure into  an a n a l y s i s  o f Canada's  institution  - Canadian  r e a d e r was g i v e n  the reader a of the capital  intermediaries.  necessary background  development  growth  REVIEWED  understanding of the importance  was u s e f u l  the  has been  the future.  The  for  h a s now b e e n a c c o m p l i s h e d .  industry  Through  I.  the  fund  the reasons  and  paper  intermediary  market.  isolate  of this  mutual  a financial  capital to  purpose  CONCLUSIONS  fastest mutual  and c h a r a c t e r i s t i c s  information  o f t h e growth and growing  funds.  information  This  financial Accordingly,  on t h e o r g a n i z a t i o n ,  of the industry.  137 This for  information the rapid  fund  provided insight  growth  industry.  attractiveness  the  broad  is  of the reasons  of the mutual  distribution  distributed  the reasons  a c h i e v e d by t h e C a n a d i a n  Two  the  into  network  d i s c u s s e d were  f u n d p r o d u c t and  through  to the public.  mutual  which  I t was  the product  emphasized,  o  however,  that  product  An  examination  of  the mutual  to  future  fund  of  product  The f i n a l  upon p u b l i c  behind  public  acceptance.  acceptance  became t h e s e c o n d  major  u n d e r t a k i n g was t o e x a m i n e  outlook f o r the Canadian  see i f i t would  growth  depend  of the reasons  undertaking. the  sales  mutual  fund  industry  continue to maintain i t s relative  position.  The n e x t  t h e more i m p o r t a n t  section  findings  will  highlight  some  and c o n c l u s i o n s o f  this  s tudy.  II.  The which term  SUMMARY AND  main  text  "capital  market"  Canadian  it  was s u g g e s t e d ,  of  a capital  streamline  financial  this  began  and t h e r o l e ,  market.  i n Chapter I I , of the and  development  Economic  growth,  by t h e f o r m a t i o n intermediaries  I t has been  and f i n a n c i a l  h a v e made p o s s i b l e  CHAPTERS  growth  intermediaries.  and f i n a n c i a l  market  BY  a discussion  i s accompanied  market  the c a p i t a l  that  of the thesis  provided the reader with  of  of  CONCLUSIONS  the process  to  the existence  intermediaries of capital  formation.  138 The  capital  intermediate  and  made a v a i l a b l e and  where  market  long-term  instruments  between borrowers  to  borrowers  want  and  and  funds  i t s own  corporate  so  forth  a  stock,  numerous  nineteen  Canada,  only  and  twelve  the  nineteen  considered analyzed  the  major  to  1968.  seven  middlemen  savers  savers  This  transformation  intermediary deposits,  and  shares,  in turn  use  instruments  such  bonds, mortgages  century;  intermediares  o r i g i n a t e d i n the  appeared  i n the  financial  major  as  and  i n t e r m e d i a r i e s are  nineteenth  financial  has  from  assets  are  borrowers. financial  the  i n terms  There  funds  other  individuals,  middlemen  role  to buy,  corporate  i s s u e d by  c r e a t i o n of  the  for lenders  as  their  as  and  and  act  a financial  received to purchase  as  The  by  where  outstanding  require.  i n s t r u m e n t s ; , such  certificates funds  In  channel  borrowers  issuing  gathered  institutions  providing financial  i s accomplished  the  are  a market  already  savers.  process  or  as  governments  are  institutions by  the  funds  that  Financial  financial  defined  to businesses,  transferred.  the  was  and of  been  financial  however,  of  operating  in  nineteenth  century  century.  Of  intermediaries, only  were asset an  twentieth  the  essentially  nine  are  only intermediaries  growth.  impressive  institutions  rate  of  i n Canada  growth  for  from  1957  139 Aggregate  growth  in  t h e economy  at  the  end  period  that  and  assets  109%  While  uneven.  the  growth  growth  of  financial  launched  specific  fund  as  analysis  financial  differs  from  own  the  proceeds;  the  shares  securities  market  a pooling  industry. of  Canadian  glimpse  at  confirm  f o r the  industry the  a global  period  i s i t s main  i s that  portfolio  the  activity  function.  to  and of  to obtain  mutual  shown  that  a  i t sells  invests investing  I t was  i n v e s t m e n t company  i t enables  of  basis,  i n that  to the p u b l i c  therefore,  terms  discussion  I t was  other institutions  or u n i t s  in  I I I , of Canadian  intermediaries.  of savings,  diversified  on  i n Chapter  j u s t i f i c a t i o n f o r an  capital  fund  a d e p a r t u r e from  intermediaries  its  in  assets  I I , will  industry  success of the mutual  of  funds  of t h i s  outstanding  funds  the A  growth  1968.  The  a  institutions  most  mutual  second.  s t a t i s t i c s presented i n Chapter  to  The  institutions,  the  1957  o f G.N.P.  financial  of aggregate  ranked  leadership  83%  growth  eleven year period,  the Canadian  financial  industry  were  the  f o r the c o r r e s p o n d i n g  the  of r e - d i s t r i b u t i o n  fund  with  a l l nine major  during  a c h i e v e d by  nine major  mutual  compared  f o r t h e most p a r t  was  terms  the  1957  in size  were  growth In  shows  i n 1968.  increased rates  of  i n assets  investors,  stated  that  i n the through  a p r o f e s s i o n a l l y managed  securities.  mutual  140 Mutual companies entitle  funds  by  were  the fact  distinguished that  from  the h o l d e r to r e c e i v e ,  computed  by  reference to the value  interest  i n the assets of the i s s u i n g  at  o f 8%  t o 9%  Closed-end investment Chapter from  funds  funds  investment saw  i n most  organization. to the  cases,  an  public  acquisition  price.  discussed i n  which  of  of d i s t i n g u i s h i n g  are often  that  Canadian  the l e g a l  mutual  referred  form  and  them  t o as o p e n -  other  financial  their  organizational  This  institutions  securities  be  an  incorporated  operational  little.  This  t o p r o v i d e a means  their  on t h e p o r t f o l i o  participants.  may  From  matters  of the necessity  losses  funds  organized.  profits  equity  of a proportionate  They were b r i e f l y  the o r g a n i z e r s receive  of  amount  companies.  because  public  an  within  type  whereby  to  or  issue  represent another  u n i n c o r p o r a t e d when  true  demand,  are d i s t r i b u t e d  I I I , f o r the purpose  p o i n t -of-view is  after  of the o f f e r i n g  company.  mutual  We or  funds  net asset value plus,  change  end  of time  on d e m a n d ,  period  of mutual  investment  the instruments they  a specified  Shares  other  rewards  i n that  are passed  through  i s not the case  where  the promoters  reward  principally  issued  by  through  the f i n a n c i a l  with obtain ownership  intermediaries.  141 In  the mutual  fund  context  for  the organizers  to obtain  and  administration  fees  of  shares  or u n i t s .  is  c a r r i e d on b y o u t s i d e  organizers  hold  organizations  Investment  distribution  two  organizations  mutual  funds  organized We  operate  as  brokerage  these  financial  By  a mutual  held  mutual  their  funds  may  other  and t r u s t  fund  may  be  organized  enterprises  such  companies.  In  by one o f  t o o f f e r an a d d i t i o n a l  clients.  upon  i t s period  of rapid  net assets  f o r sale  i n Canada  of mutual  fund  growth  industry i n the mid-1950's.  of Canadian  mutual  aggregated  approximately  The f o l l o w i n g t a b l e  by c a t e g o r y  several  objectives  be c r e a t e d  the mutual  million.  f o r these  variety of investors.  with  institutions  1950 t h e t o t a l  $46  t o a wide  of growth,  qualified  distribution  These  and d i s t r i b u t e  terms  embarked  and  company" r e s p e c t i v e l y .  d i f f e r e n t investment  f i r m s , banks  cases  In  distribution  i n which the  i t i s possible  i n conjunction  to  management  r e f e r r e d t o as t h e "management  t o manage  saw t h a t  these  service  i s that  to appeal  to  management  from  o f t h e e x t e r n a l i z a t i o n o f management  with  also  on t h e  participation.  company" and " d i s t r i b u t i o n  and  rewards  organizations  are normally  advantage  their  and p r o f i t s  the equity  One  i t is traditional  funds  shows t h e n e t  funds  assets  i n 1961 and 1967.  142 TABLE NET A S S E T S  HELD  CATEGORY OF MUTUAL  XII  BY CATEGORY OF MUTUAL 1961 AND 1 9 6 7 FUNDS  FUNDS  TOTAL NET ($ Dec.  C a n a d i a n M u t u a l Funds T r u s t Company I n v e s t m e n t F u n d s U n i t e d S t a t e s Based M u t u a l Funds ( h o l d i n g s i n Canada) TOTAL  In as  terms  mutual  the  funds  number  their  professional liquidity  of  mutual  concluded package  and  that  features,  principal  independent  795  2 ,770  this  qualified  were  118, and  list  fund  sales  portfolios, plans,  of withdrawal.  product  variety  I t was  an a t t r a c t i v e i n v e s t m e n t investor. i t was  shown  i s d i s t r i b u t e d through  direct sales  forces.  an  included  d o l l a r - c o s t averaging,  provided  funds  we o b s e r v e d  accumulation  point -of-view,  channels:  by mutual  or benefits  diversified  and r i g h t s  a marketing  the mutual  three  services  available to a potential  From that  Such  and m a r k e t a b i l i t y ,  funds  2,508 158 104  provided  or unitholders  management,  administrative  31.1967  787 8 not known  of organizations  to the services  list.  Dec.  t o 136 b y t h e e n d o f 1 9 6 8 .  shareholders  impressive  MILLIONS)  31,1961  a t t h e end o f 1967 t h e r e  increased  Turning to  o f t h e number  ASSETS  forces,  brokers  143 The  former  has been  distribution mutual  fund  brokers by  t h e most  important  channel of  a c c o u n t i n g f o r 66% o f t o t a l shares  or u n i t s  i n 1967.  sales  Sales  through  r e p r e s e n t e d 3 0 % i n t h e same p e r i o d ,  4% t h r o u g h  independent  sales  forces  of  followed  and o t h e r  minor  channels. The  conclusion  the  attractiveness  the  ability  have  two  factors  for  the mutual In  factors and by  in net by  Chapter which  other  cited  offered  It  at a  that  rapid  these and demand  to the  the preferences f o r the instruments by m u t u a l  mutual  funds  acceptance  and a marked  funds  into were  over  The t h r e e  offered factors  a favourable t h e growth  of f i n a n c i a l  public  those  position  i n personal  sophistication  p r e f e r e n c e t o save  through  intermediaries.  was  suggested  intermediaries  have  that  although a l l f i n a n c i a l  benefited  s a v i n g s , t h e r e were  others .  t o grow  turned our a t t e n t i o n  s a v i n g s , a development savers  product,  acceptance  intermediaries.  of public  their  suggested  public  that  product.  altered  as s h i f t i n g  terms  upon  I V , we  financial  financial  net  fund  to s e l l  i t was  I I I , was  f u n d p r o d u c t and  the industry  time  depended  services  funds  assisted  A t t h e same  i n Chapter  o f the mutual  of mutual  greatly  pace.  reached  from  the rise  some who b e n e f i t e d  i n personal more  than  144  The  reason  more  given  inflation  funds  conscious  to those  adequate  for this  was  of  their invested  to  this  problem  savers  providing  the long-term  dollars.  has been  to invest  were  t o show  the favourable  Because investors of  have  sought  mutual  substantial also  benefited  Among  those  accounts  investment  study  of  ownership  return  were  firms,  companies  trust  movement  mutual  companies  having  i n equities  the estate,  companies,  many  management  institutions  t h e upward  included  of trust  brokerage  of t h e i r assets  from  rates  out p r o f e s s i o n a l  Financial  portion  of  and F i s h e r  i n security  through  funds.  approach  investing.  of the r i s k  t h e i r savings  and  end  equity  return  power  in equities  of the Lorie  through  of  The t r a d i t i o n a l  Results  obtained  rates  purchasing  corporations. summarized  are becoming  and a r e a l l o c a t i n g t h e i r  institutions  to protect  that  a  have  of stock  trust  and  funds,  and t h e t r u s t e e d  prices . agency  closedpension  funds. The  second  upon p u b l i c  factor  acceptance  was  the development  the  part  of savers.  sophisticated risks  mentioned  they  are large  as h a v i n g  of the mutual  of f i n a n c i a l As s a v e r s have  demanded  b u t where  fund  some  bearing  product  s o p h i s t i c a t i o n on h a v e become investments  potential  rewards  more where are  great.  145  In  addition,  financial have  have  services.  altered  amount of  they  of  their  by  fact  aggressive  very  moving  package  I t was  conducted  up  o f f e r i n g to  counselling proven  Professor  the  a broader  range  Financial institutions  investment  growth.  demanded  by  scale  of  include  a  in  terms  the  study  Canadians  are  in  and  financial  greater  r e s u l t s of  that  investors  that  have b e n e f i t e d  the  Conway  of  have p r o b a b l y  been  sophistication for  s ome t i m e . A  movement  assumes  that  the  the  greater  his  investment  that  up  the  normally,  the  further portion  in  equity  has  been  problems  have  investing  top  equities The  to  We  to saw  this  supply  of,  the  a t t i t u d e of investor. the  and  that  the In  desirable  the  demand  financial brief, fact  common s t o c k  for  these  the  certain  assumes  market  Canadian  toward  three is  were  toward  problems a  suggested  structure, equities,  community  there  financial  institutions.  class  available  stocks.  in  development  many i n v e s t o r s  these  that  also  this  financial  for  found  fuller participation  i n the  demand  moves,  from i n d i r e c t  financial  curtailment:  simple  of  steered  sophistication  one be  scheme  through  problems  the  down t o  the  c u r t a i l e d i n Canada because  causing  small  and  ownership.  Three as  of  financial  i n d i v i d u a l s progress  direct investment,  indirect  of  toward  portfolio.  to  market  scale  limited  in relation  and  the boil supply to  146  In  addition, brokerage  States  have  small the by  small  by i n v e s t i n g  such  reluctance  wide was  can  their  It  was  a rapid that  pace.  which  r a p i d l y than It  was  that  well  an  the product  made t h a t  of  that  return  of financial  t o k e n , i t was new  savers  institutions  also  services. that at implied  i n s t r u m e n t s and  a c c e p t e d by t h e p u b l i c  may  grow  others. many C a n a d i a n  prepared  development,  the wants  from  nation  intermediaries  i n terms  o f savers r e s u l t i n g from  economic  up b y a  c o n t i n u e t o expand  develop  shown t h a t  presently  demands  will  By t h e same  become  was  range  financial  demands  institutions  services more  these  that  funds r e p r e s e n t  f o r higher rates  s a v i n g s and a w i d e r  offered  by p r o v i d i n g  which  out f i n a n c i a l  demands  on a n i n d i r e c t  of the p u b l i c .  V, a n a s s u m p t i o n  their  approach  has b e n e f i t e d  approach  through  to the attention  suggested  meet  which  service  developments,  instruments  The m u t u a l  group  network  c o n t i n u e t o seek  on  based  investment product, backed  Chapter  satisfy  can  institutions.  distribution  In will  i n equity  a l t e r n a t i v e investment  brought  to  has a l t e r e d h i s i n v e s t m e n t  institutional  attractive  and  a marked  and t h e U n i t e d  As a d i r e c t r e s u l t o f t h e s e  investor  financial  this  of  i n Canada  p a r t i c i p a t i n g i n the e q u i t i e s markets  one  are  t o show  accounts.  basis by  begun  houses  and needs  mutual  funds  of meeting  shifts  i n the  the level  i n the a t t i t u d e of savers of borrowers.  future  147  This  i s so  changes along  expected  the  mutual A  because  few  in  the  of  to  the  the  place  Funds  offer  social this  and  level  the  of  and  in  future  at  the  of  orientated certain  the  which  Canadian  income  saving,  are  forthcoming  Contracts,  lower  brokerage  are  The  Investment  for  are  services  mentioned  industry  the  and  technological  present.  changes  opportunity  i n t e r e s t by  social  instruments  recommendations  wage  possible  take the  favour  legislative Mutual  have  of  to  on  to  l i n e s of  funds  expected  many o f  Committee increases  groups and  making  the  lack  firms  in small  investment  technological  changes,  the  accounts. In the  terms  computer  refined  and  of as  a  tool  quantified  qualified  investment  financial  institutions  in  the  battle  The strides  for  mutual in  many m u t u a l data  on  this  data  fund  which is  to  the  average  on  his  own;  management  so  personnel in a  industry  formulate cases  i s becoming  place  highly certain  competitive  has  already  areas.  have b e t t e r  position  superior  that  to  invests the  great now,  more  precise  decisions, that  and  available  i n the  advantage  increasingly  made  Right and  investment  i n d i v i d u a l who so  and  more  savings.  managers  much  will  of  analysis,  methods  strong  technological  i n most  to  investment  research  public  fund  these  for  use  of  obvious.  market professional  148  As  a result,  that to  the  the  many  odds  individual  against  mutual  fund  them  investors  are  industry  too  will  high  be  and  convinced  will  for professional  turn  investment  management. It that by  the  new  public  will  demands by  has  taken The  enabled  a  we  observed fund  potential  to  the  innovators are  insure  the  as  the  process  of  becomes fund  more  industry  line  Within  adviser  to  reach  and  to  mutual  i n moving Other  the  such  a broader  fund  the  financial  enable  section the  and  has  offered  by  scrambling  also  a mutual  been  into  trust  m o v e m e n t was  several  Quite  many  scrambling".  of  among  indirectly  included  a  opportunity  objectives.  industry  This  "financial  complex  investments  areas  being  companies.  financial  o f f e r them  directly  presently  an  complexes" which  feature,  of  growth  integrated  fund  process  rapid  provide  this  insurance  their  institutions  to  from  and  create  has  apart  services  who  complexes"  d i f f e r e n t investment  the  others.  "financial  "mutual  areas.  accepted  financial  mutual  with  other  the  competition  funds  successful  services  of  services.  their  institutions  role.  investors  apportion  be  again,  industry  financial  to  Here  development the  financial  and  They  steps  leading  of  mutual  will  p o s i t i o n as  intensified.  that  grow more r a p i d l y t h a n  savers.  taking  relative  above  instruments  institutions  presently and  suggested  develop  These new  was  of companies  broadly In  fund  termed  the complex  149 becomes thus of to  associated  forming  with  complexes  the reader  services  available  Canadian  its  representatives  counsellors. become  a  industry line  In for  mutual the of  The t a l e n t  rates  funds" since  their  mutual  industry in  the  training  financial  to provide  will fund  an  integrated  been  investor has that  a r e known by t h e  demand  introduced  to increase  accepted  contemplate rates  as  "venture  public  i n 1966.  said  sums  up t h e i m p o r t a n t  of this  paper  on t h e C a n a d i a n  I t i s an e x t r e m e l y  economy.  prove  objectives  organizations  and has f u l f i l l e d  growth  of  i f the mutual  the industry  i n order  industry.  should  within  planning  anticipated  investment  and c o n c l u s i o n s  the Canadian  years  t o meet  introduction  fund  place  qualified  i t se f f o r t s  been w e l l  What h a s now findings  involved  complex.  b y way  of f i n a n c i a l  V,  financial  becomes  taking  requirement  of r i s k  These  and have  i n Chapter  who  industry  of return  with  acceptance  examples  services.  an a t t e m p t  return.  are also  t o become  intensifies  funds  were d e s c r i b e d  fund  necessary  higher  institutions  Two  of the f i n a n c i a l  mutual  of f i n a n c i a l  complex.  t o an i n v e s t o r  developments  the  financial  t h e number o f a d d i t i o n a l  any one s e c t o r New  other  the f i n a n c i a l  financial show  with  a very  worthwhile  function  A l li n a l l , the next  t o be a v e r y  and d e v e l o p m e n t  fascinating  few  i n t e r e s t i n g phase i n  of Canadian  mutual  funds.  150  III.  OPPORTUNITIES  A study always same On  such  opens  new  writer's  mind  Funds  fund  What  which  industry.  fund  might are  over  which  take place w i t h i n  over.  comes t o t h e  Committee have  on  Mutual  f o r the Canadian  recommendations  fund  industry  other financial  i f implemented,  groups  passed  i m p l i c a t i o n s the  the mutual  fund  paper  on t h e  lightly  that  I f certain  advantage  recommendations;  industry? will  may  intermediaries?  slow  down  Within the i n d u s t r y ,  benefit  groups  have  will  most  from  suffer?  the industry  as  legislative  What  changes  recommendations  implemented? Two  as  will  of mutual  mutual  idea  Contracts w i l l  recommendations, growth  areas  o f The C a n a d i a n  implemented,  i n this  f o r a d d i t i o n a l study  i s the growth  competitive  the  doors  and I n v e s t m e n t  mutual  STUDIES  as t h e one u n d e r t a k e n  an i m m e d i a t e  recommendations  a  OTHER  t o p i c , o r f o r nese.arxh i n t o  the former,  are  FOR  areas  changes  o f new  are introduced  and  anti-combines  for  the mutual  How  will  years  studies  by government  legislation.  fund  become  industry  What  a s new  the p r o l i f e r a t i o n  i s the b e l i e f will  presently  develop  through tax i n store  t a x laws react  are introduced? i n future  of f i n a n c i a l  of the w r i t e r  that  out o f government  on t h e l e g i s l a t i v e  obvious  lies  the anti-combines department  toward It  r e s e a r c h may  drawing  complexes?  many  policy  boards.  worthwhile decisions  BIBLIOGRAPHY  152  BIBLIOGRAPHICAL A.  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L e s s a r d , P i e r r e H., " C a n a d i a n M u t u a l F u n d s : A Review o f the I n d u s t r y and D e t e r m i n a t i o n o f a Method t o E v a l u a t e t h e i r Performance," D i s s e r t a t i o n , Harvard Business S c h o o l , A p r i l , 1966. L u s z t i g , P e t e r A. R o b e r t W. W h i t e a n d " M u t u a l Funds and T h e i r C o n t r o l P a p e r p r e p a r e d f o r The C a n a d i a n Funds and I n v e s t m e n t C o n t r a c t s , Price,  L e s l i e G. J . Wong, of P o r t f o l i o Companies," C o m m i t t e e on M u t u a l August, 1968.  P.W., "An E x a m i n a t i o n o f t h e C h a n g i n g R o l e o f F i n a n c i a l I n t e r m e d i a r i e s i n t h e Modern Economy," G r a d u a t i n g E s s a y i n Commerce, The U n i v e r s i t y o f B r i t i s h C o l u m b i a , Vancouver, A p r i l , 1967.  W i l l i a m s o n , P e t e r J . , " M u t u a l Funds i n C a n a d a , " A r e s t r i c t e d paper prepared f o r the F e d e r a l - P r o v i n c i a l C o n f e r e n c e o f O f f i c i a l s on S e c u r i t y R e g u l a t i o n , 1 9 6 6 . E.  NEWSPAPERS  L u t s k y , I r v i n , "Lack o f adequate s e c u r i t i e s r e s e a r c h d a t a i s b l a m e d f o r s w i n g t o i n v e s t m e n t i n U.S.," T h e T o r o n t o Globe and M a i l , J a n u a r y 27 , 1969 , p . B2 .  156  Lutsky, I r v i n , "Small deals The T o r o n t o G l o b e a n d Lyons,  called Mail,  costly for brokers," May 1 4 , 1 9 6 9 , p . B l .  J o h n F., " F r o m O r p h a n t o C i n d e r e l l a - V a r i a b l e Annuity P o l i c i e s are becoming D a r l i n g of the L i f e Insurance Industry," The W a l l S t r e e t J o u r n a l , J u l y 26, 1967, p.26.  Rabinowitz, Arnold, The F i n a n c i a l  "Preferreds Post, July  R i d d e l l , B e a t r i c e , "Agents The F i n a n c i a l P o s t ,  are not p r e f e r r e d , " 13 , 1 9 6 8 , p p . 1 , 4 .  f i n a l l y s e l l insurance, J u n e 14, 1969, p . l .  funds,"  R o b e r t s o n , F r a s e r , " C a n a d i a n M y t h E x p l o d e d on E q u i t i e s I n v e s t m e n t , " The T o r o n t o G l o b e a n d M a i l , J a n u a r y 1968, p.B2.  27,  The  Financial Post, vanish," June  day  The  T o r o n t o G l o b e and M a i l , "Study p r o f i t m o s t , " A u g u s t 1, 1 9 6 9 ,  "Predicts small 1, 1 9 6 7 , p . 5 .  i n v e s t o r may shows where p.BIO.  some brokers  157  >  APPENDIX  158 APPENDIX THE C A N A D I A N COMMITTEE ON MUTUAL The  A  FUNDS AND  I N V E S T M E N T CONTRACTS  E s t a b l i s h m e n t o f t h e Committee  D u r i n g t h e F e d e r a l - P r o v i n c i a l C o n f e r e n c e s on S e c u r i t i e s R e g u l a t i o n h e l d i n 1 9 6 6 , c o n s i d e r a t i o n was g i v e n t o t h e r e g u l a t i o n o f mutual funds and o f i n v e s t m e n t contracts. I t was d e c i d e d t h a t t h e a v a i l a b l e i n f o r m a t i o n on t h e o p e r a t i o n o f m u t u a l f u n d s a n d o f i n v e s t m e n t c o n t r a c t c o m p a n i e s i n C a n a d a was n o t s u f f i c i e n t l y d e t a i l e d , a n d t h a t a c o m m i t t e e s h o u l d be a p p o i n t e d t o c o n s i d e r t h i s a n d r e l a t e d m a t t e r s a n d t o make r e c o m m e n d a t i o n s a s t o l e g i s l a t i o n In accordance w i t h t h i s d e c i s i o n , t h e Canadian Committee on M u t u a l F u n d s a n d I n v e s t m e n t C o n t r a c t s was e s t a b l i s h e d i n March, 1967. The  members o f t h e C o m m i t t e e ,  at the present  time, are:  G. E. G r u n d y , Superintendent of Insurance Province of Ontario.  L o u i s , de B. G r a v e l , D i r e c t o r , Companies P r o v i n c e o f Quebec.  Q.C. Branch,  K. P. L a w t o n , Q.C. A d m i n i s t r a t o r u n d e r t h e New Brunswick S e c u r i t i e s Act  M a r c L a l o n d e , Q.C. Principal Secretary to the Prime M i n i s t e r  G. H. R o s e , Q.C. Chairman o f t h e A l b e r t a S e c u r i t i e s Commission  F. C. T a p l e y , R e g i s t r a r under Securities Act  the Manitoba  W . S. I r w i n , Superintendent of Brokers, B r i t i s h Columbia Securities. Commission. The  Overall  F u n c t i o n o f t h e Committee  The C o m m i t t e e i s p r e s e n t l y i n t h e p r o c e s s o f c o n d u c t i n g an e x t e n s i v e s t u d y o f mutual funds and i n v e s t m e n t c o n t r a c t s i n Canada. The p u r p o s e o f t h e s t u d y i s t o o b t a i n complete i n f o r m a t i o n c o n c e r n i n g t h e open-end mutual funds (including funds s p o n s o r e d by t r u s t c o m p a n i e s ) and i n v e s t m e n t c o n t r a c t s u p o n t h e b a s i s o f w h i c h d e t e r m i n a t i o n may b e made a s t o w h e t h e r l e g i s l a t i o n i n a d d i t i o n t o t h e e x i s t i n g l e g i s l a t i o n i s required f o r the protection of the public interest. A p a r t from t h e s t r u c t u r e o f mutual funds and investment c o n t r a c t i s s u e r s , t h e scope o f t h e study has b e e n e x t e n d e d t o s u c h m a t t e r s as t h e r e l a t i o n s h i p o f the i s s u e r s w i t h management and s e l l i n g companies and investment d e a l e r s , problems a r i s i n g i n the s a l e t o the p u b l i c o f mutual fund s h a r e s and i n v e s t m e n t c o n t r a c t s , and v a r i a b l e c o n t r a c t s i s s u e d by l i f e i n s u r a n c e companies.  159  At the o u t s e t of i t s work, the Committee d i s t r i b u t e d to mutual funds, investment contract companies, t r u s t companies, l i f e insurance o r g a n i z a t i o n s , brokers, stock e x c h a n g e s and v a r i o u s o t h e r a s s o c i a t i o n s and organizations, a l i s t o f t o p i c s t o be c o n s i d e r e d b y i t . T h o s e who were i n t e r e s t e d were asked t o submit b r i e f s . I n a d d i t i o n , t h e C o m m i t t e e ' s s t a f f and consultants h a v e c i r c u l a t e d d e t a i l e d q u e s t i o n n a i r e s a n d h a v e h a d many m e e t i n g s w i t h r e p r e s e n t a t i v e s o f m u t u a l f u n d s and investment contract i n d u s t r i e s . Because of the q u a l i t y o f i n f o r m a t i o n c o l l e c t e d by t h e s t a f f , and t h e h i g h q u a l i t y o f f o r m a l and i n f o r m a l s u b m i s s i o n s r e c e i v e d by i t , i t has b e e n d e c i d e d by t h e C o m m i t t e e n o t t o h o l d p u b l i c h e a r i n g s . The  S t a f f of  the  Committee  The C o m m i t t e e h a s e s t a b l i s h e d a c e n t r a l o f f i c e a t T o r o n t o , where i t has a s t a f f o f a p p r o x i m a t e l y 20 p e r s o n s h e a d e d b y M e s s r s . J.C. B a i l l i e a n d C. B r u n e a u . Mr. B a i l l i e is a s s o c i a t e d w i t h t h e law f i r m o f T o r y , T o r y , D e s L a u r i e r s and B i n n i n g t o n i n T o r o n t o and l e c t u r e s i n s e c u r i t i e s r e g u l a t i o n a t O s g o o d e H a l l Law S c h o o l . He p r e v i o u s l y w o r k e d on s p e c i a l s t u d i e s f o r the O n t a r i o S e c u r i t i e s Commission, t h e R o y a l C o m m i s s i o n on W i n d f a l l , a n d t h e F e d e r a l T a s k F o r c e on S e c u r i t y R e g u l a t i o n a n d C o r p o r a t e D i s c l o s u r e . Mr. B r u n e a u , a l s o a l a w y e r , has h e l d t h e p o s i t i o n o f S p e c i a l A s s i s t a n t t o t h e M i n i s t e r o f J u s t i c e , O t t a w a , and w o r k e d on s t u d i e s r e l a t i n g t o f e d e r a l r e g u l a t i o n o f s e c u r i t i e s a n d w i t h t h e c o m m i t t e e s e t up t o s t u d y corporate and l a b o u r d i s c l o s u r e , w h i c h e v e n t u a l l y l e d t o t h e •enactment o f t h e C o r p o r a t i o n s and L a b o u r U n i o n s R e t u r n A c t . He h a s a l s o b e e n a s s o c i a t e d w i t h a f i r m o f i n v e s t m e n t d e a l e r s , a n d b e f o r e j o i n i n g t h e C o m m i t t e e he was the A s s i s t a n t S e c r e t a r y pf S t e i n b e r g ' s L i m i t e d i n M o n t r e a l . I n a d d i t i o n t o M e s s r s . B a i l l i e and B r u n e a u t h e p r o f e s s i o n a l s t a f f o f t h e C o m m i t t e e a l s o i n c l u d e s an e c o n o m i s t , Mr. H.J. C l e l a n d , f o r m e r l y t h e D i r e c t o r o f S u r v e i l l a n c e w i t h t h e T o r o n t o S t o c k E x c h a n g e and a r e s e a r c h c o - o r d i n a t o r , Mr. P a u l H.C. Dyson, a business graduate student from the U n i v e r s i t y of B r i t i s h Columbia. The  Report  of  the  Committee  Since the c r e a t i o n of the Committee, i t ' s s t a f f has been a c t i v e l y engaged i n the c o l l e c t i o n of i n f o r m a t i o n concerning t h e s e i n d u s t r i e s , and i t i s h o p e d t h a t t h e R e p o r t w i l l be c o m p l e t e d i n l a t e 1 9 6 9 . Following the completion o f t h e s t u d y , t h e R e p o r t w i l l be submitted t o t h e P r i m e M i n i s t e r s and P r e m i e r s o f t h e eleven j u r i s d i c t i o n s concerned which w i l l i n c l u d e recommendations as t o w h e t h e r a d d i t i o n a l l e g i s l a t i o n i s r e q u i r e d f o r t h e p r o t e c t i o n of the i n v e s t o r .  

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