Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption from National Instrument 81-106 Investment Fund Continuous Disclosure to permit an investment fund that uses specified derivatives to calculate its NAV on a weekly basis and not on a daily basis, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, s.14
September 28, 2009
In the Matter of the Securities Legislation of Ontario (the Jurisdiction)
and
In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of --North-American-Financials Capital Securities-Trust-(the-Filer)‑
Decision Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the requirement in section 14.2(3)(b) of National Instrument 81106 Investment Fund Continuous Disclosure (NI 81-106) that the-net asset value (NAV) of an investment fund must be calculated at least once every business day if the investment fund uses specified derivatives (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11‑
102 Passport System (MI 11-102) is intended to be relied upon in Alberta,
British Columbia, Manitoba, Saskatchewan, Quebec, New Brunswick, Nova
Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon,
Northwest Territories and Nunavut.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
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The Filer will be an investment trust, to be established under the laws of Ontario pursuant to a trust agreement.
Connor, Clark & Lunn Capital Markets Inc. (the Manager) is the promoter and manager of the Filer. The Manager will be responsible for providing or arranging for the provision of administrative services required by the Filer. The head office of the Manager is located in Ontario.
The Filer filed a preliminary prospectus (the Preliminary Prospectus) dated September 2, 2009 on SEDAR with respect to a public offering (the Offering) of Class A Units and Class F Units (collectively, the Units, and each holder of a Unit a Unitholder) a receipt for which was issued by the Ontario Securities Commission on September 3, 2009. The Offering of the Units is a one-time offering and the Filer will not continuously distribute the Units.
The Filer's investment objectives are (i) to provide Unitholders with attractive taxadvantaged quarterly cash distributions, and (ii) to return to Unitholders at least the original issue price of the Units upon termination of the Fund on November 30, 2014. The Filer will seek to achieve its investment objectives through exposure to an actively managed portfolio (the Portfolio) consisting primarily of investment grade capital securities of the six largest Canadian banks, large Canadian insurance companies and U.S. financial institutions with a minimum issuer rating of A by Standard & Poor's, a division of the McGraw Hill Companies, Inc.
The Portfolio will be held by North American Portfolio Trust (NAPT), a trust to be established under the laws of the Province of Ontario pursuant to a trust agreement. The Manager is also the manager and promoter of NAPT.
NAPT will be established for the purpose of acquiring and holding the Portfolio. The Filer will seek to achieve its investment objective by entering into a forward purchase and sale agreement (the Forward Agreement) with a Canadian financial institution or one of its affiliates (the Counterparty) pursuant to which the Counterparty will agree to deliver to the Filer on the earlier of: (i) November 30, 2014; or (ii) any other date upon which the Forward Agreement is terminated in accordance with its terms (the Forward Termination Date), a portfolio consisting of Canadian public issuers that are "Canadian securities" as defined in subsection 39(6) of the Income Tax Act (Canada) (the Canadian Securities Portfolio). The aggregate value of the Canadian Securities Portfolio will be equal to the redemption proceeds of a corresponding number of units of NAPT, net of any amount owing by the Filer to the Counterparty.
To provide liquidity for the Class A Units, an application requesting conditional listing approval will be made on behalf of the Filer to the Toronto Stock Exchange (the TSX).
The Class F Units are designed for fee-based accounts and differ from the Class A Units in the following ways: (i) Class F Units will not be listed on a stock exchange; (ii) the fees payable to the syndicate of agents with respect to the Offering on the
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issuance of the Class F Units are lower than the Class A Units; and (iii) the service fee component of the management fee payable to the Manager, being 0.40% per annum of the net asset value attributable to the Class A Units, plus applicable taxes, is only payable with respect to the Class A Units. The Class F Units are convertible into Class A Units and it is expected that liquidity for the Class F Units will be obtained by means of conversion into Class A Units and the sale of those Class A Units through the facilities of the TSX.
- Class A Units and Class F Units may be redeemed on the second last business day of April of any year commencing in 2011 (but must be surrendered by the Unitholder on the last business day of March in order to be redeemed), subject to certain conditions, at a redemption price per Unit equal to 100% of the net asset value per Unit of the relevant class, as applicable (less any costs associated with the redemption, including
brokerage costs, and less any net-realized capital gains to the Filer that are distributed
to a Unitholder concurrently with the proceeds of disposition on redemption).
In addition to such annual redemption right, Class A Units and Class F Units may be redeemed on the second last business day of each month, other than in the month of April (but must be surrendered by the Unitholder on the last business day of the month preceding the redemption month in order to be redeemed), subject to certain conditions, at a redemption price computed by reference to the market price of the Class A Units on the applicable monthly redemption date (and less any costs associated with the redemption, including brokerage costs).
Class F Units may be converted in any week on the first business day of the week (the Conversion Date) by delivering a notice and surrendering such Class F Units by 5:00 p.m. (Toronto time) at least 5 business days prior to the Conversion Date. For each Class F Unit so converted, a holder will receive that number of Class A Units equal to the net asset value per Class F Unit as of the close of trading on the business day immediately preceding the Conversion Date divided by the net asset value per Class A Unit as of the close of trading on the business day immediately preceding the Conversion Date.
Under section 14.2(3)(b) of NI 81-106, an investment fund that is a reporting issuer that uses or holds specified derivatives, such as the Filer intends to do, must calculate its net asset value on a daily basis.
The Filer proposes to calculate net asset value on the Friday of each week (or if any Friday is not a business day, the immediately preceding business day) and the last business day of each month.
The Preliminary Prospectus discloses, and the final prospectus of the Filer will disclose, that the net asset value per Unit of each class of Units will be calculated and made available to the financial press for publication on a weekly basis. The Manager will post the net asset value per Unit of each class of Units on its website at www.cclcapitalmarkets.com.
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Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) the Class A Units are listed on the TSX; and
(b) the Filer calculates the net asset value per Unit of each class of Units at least weekly.
Vera Nunes
Assistant Manager, Investment Funds Ontario Securities Commission