OSCONTARIO SECURITIES COMMISSION

Researching your investmentsA GUIDE FOR INVESTORS

ONTARIO SECURITIES COMMISSION RESEARCHING YOUR INVESTMENT 1www.osc.gov.on.ca

Contents

The role of the OSC 2

What you need to know 3

Where to find information 7

Understanding disclosure documents 9

Protecting yourself 15

The best way to protect your money is tobe an informed investor. Whether youhave a financial adviser or invest on yourown, it’s wise to verify information aboutan investment before you buy.

You can learn a great deal aboutinvestments and the companies that issuethem by reading prospectuses, annualand quarterly reports, and other filingsthat companies make with the OntarioSecurities Commission (OSC). These

documents can tell you whether acompany is making or losing money and why, and what could affect yourinvestment.

This guide describes what to look for beforeyou invest, where to find information andsome tips for protecting your investments.

If you have any questions about investingor would like more information, call theOSC’s Contact Centre at 1-877-785-1555.

Be an informed investor

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The role of the OSC

The OSC regulates Ontario’s capital markets. We provide protection to investors fromunfair, improper or fraudulent practices andwork to foster fair and efficient capitalmarkets and confidence in their integrity.

We do this by making and enforcing rules underOntario’s Securities Act and Commodity Futures Act. This includes requiring public companies to disclose keyinformation about their finances and operations indocuments like financial statements, the management’sdiscussion and analysis (MD&A), prospectuses and newsreleases. We also require insiders of public companies toreport their trading in the company’s securities.

We investigate complaints about possible breaches ofOntario securities law, such as misleading disclosure,selective disclosure and insider trading. We have theauthority to impose sanctions on individuals andcompanies that breach Ontario securities law. Sanctionsmay include reprimands, fines, suspensions and bansfrom the securities industry.

Violations of Ontariosecurities law relating to disclosure

� Misleading disclosure.A public companypublishes inaccurate,incomplete or unbalanceddisclosure.

� Selective disclosure.A public company disclosesmaterial information to aselect group, rather thanto the general public.

� Untimely disclosure.A public company does not disclose a materialchange in its businesswhen required.

� Insider trading.An insider of a publiccompany buys or sells thecompany’s securities whenthey have materialinformation that has notgenerally been disclosed tothe public. Examplesinclude details about aplanned take-over bid,news of a corporatereorganization or merger,or plans to acquireanother company.

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What you need to know

Doing your research before you invest canhelp you make an informed decision. But itdoesn’t stop there. Keeping up to date onyour investments can help you decide ifthey’re still right for you. For example, newsof the company winning or losing a majorcustomer, launching a product orexperiencing a sharp change in profits candramatically affect the value of your shares.

Try to learn everything you can about:

� the investment

� the company that’s issuing it

� the people who are running the company

The following pages are some things toconsider before you invest.

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What you need to know cont’d

Understand the investment

Find out how the investment works, the costs associated with it and any restrictions it might have.

� How will this investment make money?Does it pay dividends or interest? Does ithave the potential to go up in value?

� What must happen for the investment togo up in value? For example, do real estatevalues or the company’s market share haveto increase?

� What are the total fees to buy, hold and sellthe investment? After all the fees are paid,how much does the investment have to goup in value for you to break even?

� What are the specific risks associated withthis investment? For example, how couldchanging interest rates, an economicrecession, new competitors or stock marketups and downs affect its value?

� How easy would it be to sell theinvestment if you needed your moneyright away?

� Is this investment suitable for your goalsand risk tolerance?

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What you need to know cont’d

Understand the company

Make sure you understand the company’s business andits products or services. Find out whether the companyis making money or losing money, and why.

� How long has the company been in business?Investments in securities issued by a company withlittle or no operating history or publishedinformation may involve greater risk.

� Is the company making money?

� How is it doing compared to its competitors?

� What risks could affect the company’s performance?

� Are there any “red flags” in the financial statements?Examples include rising expenses in the face of flatsales, significant revenue or revenue growth but nonet income or profit, and negative cash flow.

� What are the assets and debts?

� What sources of financing are available to thecompany?

� Are any unusual loans or other transactionsdiscussed in the notes to the financial statements?Also look for any “off-balance sheet” transactions,which usually relate to financing techniques.

If you are unfamiliarwith reading andinterpreting financialstatements, ask afinancial adviser oraccountant to reviewthem with you.

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What you need to know cont’d

Know who is running the company

Strong management is the backbone of asuccessful company. While performance ofthe company’s shares can be a key indicatorof success, it doesn’t necessarily reflect goodmanagement, especially in the short term.

The board of directors is responsible to theshareholders and governs the company’smanagement. An effective board is objectiveand works in the best interests ofshareholders.

� Who are the CEO and senior officers ofthe company?

� How long have they been with thecompany?

� What goals have they set for thecompany?

� Have they made money for investors inthe past?

� How does the CEO’s compensationcompare with others in the sameindustry?

� How much of the company is owned byinsiders? This tells you how much controlthey have.

� How long do insiders hold their shares inthe company? This can tell you if insidersare confident in the company’s long-termprospects.

� Is the board of directors an appropriatesize for the company?

� Who sits on the board of directors?

� Who sits on the audit committee?

� What experience and qualifications dothey have?

� Are the majority of directors independentof the company?

� What are the company’s governancepractices?

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Where to find information

You can find information about a companyand its securities in its disclosure documentsand from many third-party sources.

What are disclosure documents?

The OSC requires public companies to file documentssuch as annual information forms, annual andquarterly financial statements, MD&As, managementinformation circulars, material change reports andprospectuses. They contain information that helpsinvestors assess the company’s management, products,services, finances, its future prospects and risks.Together, these documents are referred to as“disclosure documents”.

The OSC has requirements for when and howinformation is disclosed by public companies. Wereview disclosure documents to make sure companiesare meeting these requirements. Our goal is to reviewevery public company with a head office in Ontario anaverage of once every four years.

The fact that a company files documents with the OSCdoes not make the company immune from fraud ormean it is a “good” investment. You still need to carefullychoose your investments and who you deal with.

The tables starting on page 11 outline the documentspublic companies must file with us and what they cantell you.

A word about annual reports

Most public companiespublish an annual reportfor shareholders at the end of each fiscal year. The annual report includesfinancial statements andthe MD&A. It may alsoinclude articles by seniorexecutives and informationon significant events.

The OSC doesn’t regulateannual reports, but we doregulate the financialstatements and MD&Aincluded in them.

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Where to find information cont’d

What happens if information isn’tdisclosed?

If a company files a disclosure documentlate—or not at all—or we find that adocument contains a significant deficiency, we will place the company on our default list.

Depending on the nature of the default, wemay issue a “management cease trade order”or an “issuer cease trade order”. In amanagement cease trade order, thecompany’s senior management and insidersmust stop trading in the company’ssecurities until the default is corrected. Thiscan happen when the company doesn’t fileits financial statements on time but expectsto do so quickly, the default is not expectedto occur again and there are no othercompliance issues.

If the company doesn’t correct a deficiency ina reasonable period of time and it appearsthat it will likely be in default again, we mayissue an issuer cease trade order. Thissuspends all trading in the company’ssecurities in Ontario.

If we find inaccurate or incomplete disclosuredocuments during a review, we may requirethe company to correct and refile thedocuments. If this happens, we will publishthe company’s name on a refiling and errorslist. Names stay on the list for three years.

You can find the default list, cease trade orderlist, and refiling and errors list under “publiccompanies” on the OSC’s website atwww.osc.gov.on.ca.

Other sources of information

Information about the companies you investin is available from a variety of other sources:

� the company itself

� analysts’ reports

� business and investment media

� newsletters, books and other publications

� commercial databases

You can get a lot of useful information fromthese sources, but remember they only formpart of the overall picture of a company.Some sources may be biased or havepotential conflicts of interest. For example,an analyst may be commenting on acompany that his or her employer providesservices for. Other sources, like journalistsand authors, may not be qualifiedinvestment advisers or analysts. Some maybe simply expressing their opinions ratherthan stating facts. Be critical of what you readand verify facts with independent sources.

Never base your investment decision solelyon unsolicited emails, message boardpostings, websites, chat rooms or companynews releases.

SEDAR and SEDI

Public companies arerequired by securities law tofile their disclosuredocuments on the Systemfor Electronic DocumentAnalysis and Retrieval(SEDAR) at www.sedar.com.

Insiders of public companiesare required to file theirtrading reports on theSystem for ElectronicDisclosure by Insiders (SEDI)at www.sedi.ca.

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Understanding disclosure documents

Disclosure documents give you keyinformation about a company’s plans, itspeople, businesses and finances. The tableson the following pages are a summary ofcommon disclosure documents publiccompanies in Ontario must file with us.Other documents are required for specificsituations like take-over bids.

If you have a financial adviser, he or she can provideyou with these documents. You can also download acompany’s disclosure documents fromwww.sedar.com. Insider trading information isavailable at www.sedi.ca.

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Understanding disclosure documents cont’d

Chart cont’d on following page.

Document What you’ll find When it What else you should knowmust be filed

Annual informationform (AIF)

Financialstatements

> Incomestatement

Detailed information about a company’s:

� corporate structure� directors and officers� capital structure� strategy� products, services and

businesses� legal proceedings� risks

A report of a company’sfinancial information, madeup of:� income statement� cash flow statement� balance sheet� statement of retained

earnings� notes� audit report (for annual

financial statements)

How much a company hasearned and its expenses for a set period

Annually

Quarterlyand annually

Investors do not have to begiven a copy of the AIF, but it can be found onwww.sedar.com.

Not all companies are requiredto file an AIF. For example, acompany listed on the TSX-V is not required to file an AIF.

The financial statements,together with the MD&A, cantell you how well the companyhas performed and the factorsthat influence its financialability to perform well in thefuture.

This does not necessarily reflectthe company’s inflows andoutflows of cash.

Also known as an earningsreport, statement of earnings,statement of operations andstatement of profit and loss.

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Understanding disclosure documents cont’d

Document What you’ll find When it What else you should knowmust be filed

Financialstatements cont’d

> Cash flow statement

> Balance sheet

> Notes

How money flows in and outof the business from itsoperating, investing andfinancing activities

A snapshot of the net worthof a company at a point intime. It shows the company’sassets, liabilities andshareholders’ equity.

How a company arrived at thenumbers in its financialstatements and any significantevents and conditions thatmay affect the numbers

For example, a note mayexplain that a company'saccounting methods havechanged from the previousyear, describe transactions withcompanies or individualsrelated to the company, ordisclose a purchase that mayhave an effect on thecompany’s financial condition.

How a company manages itsmoney can say a lot about itsability to withstand marketchanges or unexpected events.

Also known as the statementof financial position.

Notes are a critical part of thefinancial statements andshouldn’t be ignored.

The accounting policies acompany uses can significantlyaffect its numbers. Forexample, the method used forrevenue recognition willinfluence the numbers in acompany’s financial statements.

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Understanding disclosure documents cont’d

Document What you’ll find When it What else you should knowmust be filed

Insider tradingreports

Management’sdiscussion andanalysis (MD&A)

Which insiders of the company are buying and selling the company’s shares

Management’s explanation of events affecting thecompany’s performance andmanagement’s expectations for the coming year.

A useful and informativeMD&A should offer insight into five key areas: � the company's vision and

long-term business strategy� the factors that will affect

its success� its resources and capability

to deliver results� current results� future risks

Directors, officers and majorshareholders are considered“insiders” of a company.

The MD&A and financialstatements are filed at thesame time.

If the company does not file amanagement informationcircular, the MD&A may alsocontain information about theboard of directors, committeesand corporate governancepractices.

In general, within10 calendar daysafter a trade orchange in aninsider’s holdingsof a company

Quarterly andannually

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Understanding disclosure documents cont’d

Document What you’ll find When it What else you should knowmust be filed

Managementinformation circular

Material changereport

Information about theshareholder meeting, votingprocess, items to be voted on or covered at the meeting,and compensation of directorsand officers.

It may contain otherinformation such ascommittee reports andcorporate governancepractices.

Details about any materialchange in the company’soperations or capital that isexpected to significantlyaffect the price of itssecurities, once it becomesknown to the public.

Examples of material changesmay include take-over bids,selling or acquiring businessunits, management changesand new products.

This is sent to shareholders so they can make an informeddecision about voting their sharesand other items covered at theshareholder meeting.

It’s up to the company and itsmanagement to decide whether achange is material.

Whenshareholders elect the board of directors or are asked to voteon significanttransactionsproposed by acompany

Within 10 days of the materialchange

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Understanding disclosure documents cont’d

Document What you’ll find When it What else you should knowmust be filed

News release A public statement from thecompany about a materialchange that might influencewhether investors buy, hold orsell their investment.

The news release is usuallyfiled before the materialchange report.

Companies may also issuenews releases about topicsother than material changes.These may be found on thecompany’s website.

Many company websites andnews services, such as Canada NewsWire atwww.newswire.ca allow youto be added to an e-maildistribution list for specificcompany or industryannouncements.

Read news releases carefully.The news release ismanagement's view and youshould compare or verify theinformation with othersources. Be on guard againste-mailed or faxed ”newsreleases” from dishonest stockpromoters or individualstrying to stir up interest in acompany or overstate itsachievements.

Companies mustissue pressreleases disclosingmaterial changespromptly.

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Understanding disclosure documents cont’d

Document What you’ll find When it What else you should knowmust be filed

Prospectus Material facts relating to the securities a company isplanning to offer to thepublic, including:

� a history of the companyand a description of itsoperations

� a description of thesecurities being offered

� a list of directors andofficers

� financial statements � a summary of the major

risk factors affecting thecompany

� how the company willspend the money it raisesby issuing the securities

This must be given toeveryone who buys thesecurity.

A company may file a “longform” or “short form”prospectus.

A long form prospectuscontains information aboutthe company and the newsecurities issue in onedocument.

A short form prospectus givesinvestors important highlightsabout the new securities issue.It provides a list of disclosuredocuments filed on SEDARthat form part of theprospectus but are notincluded in it.

Although prospectuses mustbe filed with the OSC, we donot assess the merit of theinvestment opportunity or theaccuracy of the information.

Some securities can be soldwithout a prospectus. Theseare called “exempt securities”.If you buy an exempt security,you may not have the samelegal rights as you do whenyou buy securities under aprospectus.

Before thecompany issuesshares or othersecurities to thepublic

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Protecting yourself

Protect yourself by getting informed before you invest and staying informed after you invest. The following are some tips to keep in mind.

Before you invest

� Read the prospectus, management information circular ormost recent annual report. You can ask your financialadviser for copies or download them from www.sedar.com.

� Understand the risks—in general, the higher the expectedrate of return, the greater the risk. You could lose some or allof your investment.

� Know the fees to buy, hold or sell the investment. Check tosee if there is a penalty or charge if you have to sell theinvestment quickly or before its maturity date.

� Be suspicious if the person giving you information or adviceis a stranger, guarantees you high investment returns, tellsyou there is little or no risk, or offers you a “hot tip” or“insider information”.

� Don’t give in to high-pressure sales tactics like limited timeoffers. Take your time making your investment decisionsand never sign documents you have not read carefully.

� Check the registration and qualifications of your investmentrepresentative. You can call the OSC at 1-877-785-1555.

� If you have any questions or concerns about the investment,get a second opinion from a financial adviser, lawyer,accountant, or call the OSC for assistance.

� Never invest in anything that you don’t fully understand.

Exempt securities

Some securities can be soldwithout a prospectus. Theseare called “exempt”securities. Examples includehedge funds and principal-protected notes. Theseinvestments are not foreveryone. If you buy anexempt security, you maynot have the same legalrights as you do when youbuy under a prospectus.

If you are interested inthese types of investments,ask a financial adviser toexplain how they work,including any guarantees,the risks and the fees.

Find out if other investmentstrategies may be moreappropriate for you.Financial advisers have anobligation to ensure thatthey recommend onlyinvestments that aresuitable for their clients.

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Protecting yourself cont’d

After you invest

� Keep all information you receive about theinvestment, copies of forms you sign and notes of any conversations you have with your investmentrepresentative.

� Review and file your account statements and tradeconfirmations. Contact your investmentrepresentative or their company if you find anydiscrepancies.

� Keep up to date on the investment and what’shappening with the company.

� Periodically review the investment to see if it’s stillsuitable for you.

� Pay careful attention to public announcements andinformation you receive about transactions such astender offers, mergers, reorganizations or other third-party actions. These transactions often involvecomplex investment decisions. Be sure you fullyunderstand the terms of any offer to exchange or sellyour shares before you act.

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This brochure is provided for information purposes only. The OSC does not provide financial or legal advice, or endorse any products or services.© 2007 Ontario Securities CommissionPrinted December 2007

Notes

Telephone: 416-593-8314Toll-free 1-877-785-1555e-mail: inquiries@osc.gov.on.ca

www.osc.gov.on.ca

Ontario Securities Commission20 Queen Street WestSuite 1900, Box 55Toronto, OntarioM5H 3S8

Contact the OSC before you invest

Anyone selling securities or offering investmentadvice in Ontario must be registered with the OSC,unless they have an exemption. Most securitiesrequire a prospectus before they are issued to thepublic, unless they have an exemption. You cancontact us to check whether someone is registeredor an investment is offered by prospectus.

OSCONTARIO SECURITIES COMMISSION