Headnote National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions – Exemptive relief granted to exchange-traded series for initial and continuous distribution of units. – Relief from take-over bid requirements in connection with normal course purchases of shares on the Toronto Stock Exchange subject to condition that shareholders are unable to exercise control or direction over the fund – Securities Act (Ontario). Applicable Legislative Provisions Securities Act,R.S.O. 1990, c.S.5, as am., 95-100, 104(2)(c) and 147.
August 6, 2013
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 PURPOSE INVESTMENTS INC. (the Filer)
DECISION
Background
The principal regulator has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) for exemptive relief from the Legislation so that all purchasers of ETF Shares (defined below) of Purpose Core Dividend Fund, Purpose Tactical Hedged Equity Fund, Purpose Monthly Income Fund, Purpose Diversified Real Asset Fund and Purpose Total Return Bond Fund (the Purpose Funds), and any additional funds of which the Filer, or an affiliate of the Filer, may be the trustree and/or manager and which operate on a similar basis with respect to the ETF Shares as the Purpose Funds ((the Future Funds), which together with the Purpose Funds are collectively referred to as the Funds) be exempted from the requirements of the Legislation related to take-over bids (the Exemption Sought), including the requirement to file a report of a take-over bid and the accompanying fee with each applicable Jurisdiction, (the Take-Over Bid Requirements) in respect of take-over bids for the ETF Shares of the Funds.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
the OSC is the principal regulator for this application; and
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, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (and together with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions (NI 14-101) and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Basket of Securities means a group of securities determined by the Filer from time to time representing the constituents of the investment portfolio then held by the Funds.
Designated Brokers means registered brokers and dealers that enter into agreements with the Funds to perform certain duties in relation to the Funds.
Prescribed Number of ETF Shares means the number of ETF Shares of the Funds determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Shareholder means beneficial and registered holders of ETF Shares.
Dealers means registered brokers and dealers that have entered into underwriting agreements with the Funds and that subscribe for and purchase ETF Shares from the Fund and Dealer means any one of them.
Terms defined in NI 14-101, Multilateral Instrument 11-102 Passport System and NI 81-102 Mutual Funds (NI 81-102) 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:
The Filer is a corporation organized under the laws of the Province of Ontario, with a head office in Ontario. The Filer is not in default of securities legislation in any of the Jurisdictions.
Each of the Purpose Funds is a separate class of shares of Purpose Fund Corp. Purpose Fund Corp. is a mutual fund corporation established under the laws of the Province of Ontario. The authorized capital of Purpose Fund Corp. includes an unlimited number of classes of non-cumulative, redeemable, non-voting shares. Each class of shares consists of four series, namely, Series A shares, Series F shares, Series I shares (collectively, the Mutual Fund Shares) and exchange-traded series (the ETF Shares). ETF Shares of each Fund will be listed on the Toronto Stock Exchange and will be available to all investors. Each corporate class is a separate investment fund having specific investment objectives and is specifically referable to a separate portfolio of investments.
The Funds, are or will be, mutual funds governed by the laws of the Province of Ontario and each Fund will be a reporting issuer under the laws of all of the jurisdictions in Canada.
Each Fund offers or will offer ETF Shares and Mutual Fund Shares. The ETF Shares operate in the same way that other exchange-traded funds do under NI 81-102.
The Filer will apply to list the ETF Shares of the Funds on the TSX. The Filer will not file a final prospectus for the Funds in respect of the ETF Shares until the TSX has conditionally approved the listing of ETF Shares.
Purpose, a registered portfolio manager, exempt market dealer and investment fund manager in Ontario, will be responsible for the administration of the Funds.
Generally, ETF Shares may only be subscribed for or purchased directly from the Funds by Dealers or Designated Brokers and orders may only be placed for ETF Shares in the Prescribed Number of ETF Shares (or an integral multiple thereof) on any day when there is a trading session on the TSX.
The Funds will appoint Designated Brokers to perform certain functions which include standing in the market with a bid and ask price for ETF Shares of the Funds for the purpose of maintaining liquidity for the ETF Shares.
Each Dealer or Designated Broker that subscribes for ETF Shares must deliver, in respect of each Prescribed Number of ETF Shares to be issued, a Basket of Securities and cash in an amount sufficient so that the value of the Basket of Securities and cash delivered is equal to the net asset value of the ETF Shares subscribed for next determined following the receipt of the subscription order. In the discretion of Purpose, the Funds may also accept subscriptions for ETF Shares in cash only, in securities other than Baskets of Securities and/or in a combination of cash and securities other than Baskets of Securities, in an amount equal to the net asset value of the ETF Shares next determined following the receipt of the subscription order.
The net asset value per ETF Share of each of the Funds will be calculated and published on any day when there is a trading session of the TSX and will be made available daily at www.purposeinvest.com.
Upon notice given by Purpose from time to time and, in any event, not more than once quarterly, a Designated Broker will subscribe for ETF Shares in cash in an amount not to exceed 0.30% of the net asset value of the ETF Shares of the Fund, or such other amount established by Purpose and disclosed in the prospectus of the Funds next determined following delivery of the notice of subscription to that Designated Broker.
Neither the Dealers nor the Designated Brokers will receive any fees or commissions in connection with the issuance of ETF Shares to them. The Filer may, at its discretion, charge an administration fee on the issuance of ETF Shares to the Designated Brokers or Dealers.
Except as described in paragraphs 5 through 10 above, ETF Shares may not be purchased directly from the Funds. Investors are generally expected to purchase ETF Shares through the facilities of the TSX. However, ETF Shares may be issued directly to Shareholders upon the reinvestment of distributions of income or capital gains or upon a switch from the ETF Shares of one Fund to ETF Shares of another Fund.
Shareholders that are not Designated Brokers or Dealers that wish to dispose of their ETF Shares may generally do so by selling their ETF Shares on the TSX, through a registered broker or dealer, subject only to customary brokerage commissions. A Shareholder that holds a Prescribed Number of ETF Shares or an integral multiple thereof may exchange such ETF Shares for Baskets of Securities and/or cash in the discretion of the Filer. Shareholders may also redeem their ETF Shares for cash at a redemption price equal to 95% of the closing price of the ETF Shares on the TSX on the date of redemption.
Shareholders have, or will have, the right to vote at a meeting of shareholders in respect of matters prescribed by NI 81-102.
Although ETF Shares will trade on the TSX and the acquisition of ETF Shares can therefore be subject to the Take-over Bid Requirements:
(a) it will not be possible for one or more Shareholders to exercise control or direction over the Funds as the Funds are separate classes of non-voting shares of Purpose Fund Corp. (which only have those voting rights available under corporate law and those prescribed by NI 81-102 which for greater certainty does not include the right to vote in connection with the election of directors of Purpose Fund Corp.) and as Purpose owns all of the common shares of Purpose Fund Corp. (which are the only class of shares of Purpose Fund Corp. that have voting rights attached to them in all circumstances);
(b) it will be difficult for purchasers of ETF Shares to monitor compliance with Take-over Bid Requirements because the number of outstanding ETF Shares will always be in flux as a result of the ongoing issuance and redemption of ETF Shares by the Fund; and
(c) the way in which ETF Shares will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium, for outstanding ETF Shares because ETF Share market price will generally reflect the net asset value of the ETF Shares of the Fund.
- The application of the Take-over Bid Requirements to the Funds would have an adverse impact upon ETF Share liquidity because they could cause Designated Brokers and other large Shareholders to cease trading ETF Shares once prescribed take-over bid thresholds are reached. This, in turn, could serve to provide conventional mutual funds with a competitive advantage over the ETF Shares.
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 is that the Exemption Sought is granted so long as ETF Shares of a Fund are non-voting shares and it will not be possible for one or more Shareholders to exercise control or direction over a Fund.
“Christopher Portner” “Vern Krishna”
Name: Christopher Portner Title: Commissioner Ontario Securities Commission
Name: Vern Krishna Title: Commissioner Ontario Securities Commission