Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted to permit a closed-end fund converting into a mutual fund to show pre-conversion past performance in sales communications – the closed-end fund has complied with the investment restrictions of NI 81-102 except with respect to leverage.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, subsections 15.6(a) and 15.6(d) and section 19.1.
April 17, 2012
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
First Asset Investment Management Inc.
(the Filer)
and
First Asset Canadian Dividend Opportunity Fund
(the Fund)
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 (the Legislation) for an exemption relieving the Fund from the prohibitions in subsections 15.6(a) and (d) of National Instrument 81-102 Mutual Funds (NI 81-102) to permit the Fund to show its historic performance data in sales communications notwithstanding that it has not, as a mutual fund, distributed its securities under a simplified prospectus for 12 consecutive months and to permit sales communications relating to the Fund to contain performance data of the Fund for the period prior to the Fund offering its securities under a simplified prospectus (the Requested Relief).
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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador and Prince Edward Island, (collectively, the Other Jurisdictions).
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 herein.
Conversion means the conversion of the Fund from a closed-end investment fund to a mutual fund on or about April 19, 2012.
Conversion Date means the date upon which the Conversion is effected, being the close of business on or about April 19, 2012.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation governed by the laws of Ontario and is registered as an Exempt Market Dealer, Investment Fund Manager and Portfolio Manager in Ontario. The Filer’s head office is located in Toronto, Ontario.
The Filer is also registered in Ontario under the Commodity Futures Act (Ontario) in the category of Commodity Trading Manager.
The Filer acts as manager and trustee of the Fund.
The Fund was established as a closed-end investment fund under the laws of Ontario pursuant to a declaration of trust dated March 22, 2010, as amended (the Declaration of Trust).
The Fund is a reporting issuer under the securities legislation of each of the provinces of Canada.
Units of the Fund were distributed pursuant to an initial public offering under a long form prospectus dated March 22, 2010 (the Long Form Prospectus) and are listed and traded on the Toronto Stock Exchange (the TSX).
As of April 3, 2012, there were approximately 15,149,500 units of the Fund outstanding with a net asset value (NAV) per unit of $10.58, for an aggregate NAV of the Fund of approximately $160,213,000.00.
Since its inception, the Fund has complied with the investment restrictions contained in NI 81-102, other than section 2.6(a) thereof with respect to the use of leverage.
Neither the Filer nor the Fund is in default of securities legislation in any province or territory of Canada.
The Declaration of Trust and the Long Form Prospectus provide that, effective on or about the date of the Conversion, units of the Fund will be delisted from any stock exchange on which they were listed, the Fund will convert to an open-end mutual fund, and units of the Fund will become redeemable at their NAV per unit on a daily basis.
A written notice regarding the Conversion was mailed to unitholders of the Fund on or about February 13, 2012.
The Filer filed a preliminary simplified prospectus, preliminary annual information form and preliminary fund facts on March 8, 2012 on SEDAR to qualify Class A units and Class F units of the Fund under National Instrument 81-101 Mutual Fund Prospectus Disclosure in Ontario and each of the Other Jurisdictions.
A press release announcing the Conversion was issued on April 5, 2012.
The Fund’s units will be delisted from the TSX at the close of business on April 13, 2012 in order to permit the completion of the Conversion.
Following the Conversion, the investment practices of the Fund will comply in all respects with the requirements of Part 2 of NI 81-102.
The Fund’s Class A fund facts will include information relating to the past performance of the Fund as set forth in Part I, Item 4 of Form 81-101F3 – Contents of Fund Facts Document, which information will include pre-Conversion past performance.
The Filer expects that the Fund will be managed substantially the same post-Conversion as it was pre-Conversion save and except for the use of leverage. Any changes between the Fund pre- and post-Conversion that could have a material effect on the performance of the Fund will be disclosed in sales communications and fund facts pertaining to the Fund.
As of the Conversion Date:
(i) The Fund will convert to an open-end mutual fund;
(ii) The units of the Fund will have been delisted from the TSX;
(iii) The Fund will no longer use leverage to pursue its investment objectives;
(iv) All outstanding units of the Fund will be redesignated as front-end load Class A units; and
(v) The annual management fee for the Class A units will increase from 1.50% to 2.00%, by increasing the amount of the quarterly servicing fee payable out of the management fee from 0.50% per annum to 1.00% per annum.
A press release confirming the Conversion will be completed as of the close of business on the Conversion Date and issued soon thereafter, and will be filed, along with the related material change report, on SEDAR.
Without the Requested Relief:
(i) sales communications pertaining to the Fund will not be permitted to include performance data until approximately April 19, 2013, being the date when the Fund is expected to have distributed securities, as a mutual fund, under a simplified prospectus in a jurisdiction for 12 consecutive months; and
(ii) sales communications pertaining to the Fund will only be permitted to include performance data for the period commencing after approximately April 19, 2012, being the date on which the Fund is expected to have commenced distributing securities, as a mutual fund, under a simplified prospectus.
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 Requested Relief is granted.
"Raymond Chan"
Raymond Chan
Manager, Investment Funds Branch
Ontario Securities Commission