May 28, 2021
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)
AND
IN THE MATTER OF
LONGEVITY PENSION FUND
(the Fund)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) granting the Fund relief from:
(a) subsection 10.3(1) of National Instrument 81-102 Investment Funds (NI 81-102), to permit the redemption price of a security of a class of the Fund to which a redemption order pertains to be less than the net asset value (NAV) per security of that class next determined after the receipt by the Fund of the order (the Redemption Price Relief); and
(b) subsection 2.1(1) and paragraphs 4.1(3)(a) and 4.1(3)(d) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), to permit the Fund to prepare and file a fund facts document (the Fund Facts) for each of its classes of securities that includes Fund Specific Disclosure (as defined below) which is not specifically required or permitted to be in Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3) (the Fund Facts Disclosure Relief),
(collectively, the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the 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.
Representations
This decision is based on the following facts represented by the Filer.
The Filer is a corporation incorporated under the laws of the Province of Ontario and is the trustee and investment fund manager of the Fund. The Filer’s head office is located in Toronto, Ontario.
The Filer is registered as an investment fund manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, a portfolio manager in British Columbia, Ontario and Québec, an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan and a commodity trading manager in Ontario.
The Filer is not in default of securities legislation in any of the Jurisdictions.
The Fund, to be established as a trust, will be a mutual fund created under the laws of the Province of Ontario and will be governed by the provisions of NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities.
The Fund intends to commence distributing units (Units) and, for this purpose, has filed a preliminary simplified prospectus, annual information form and fund facts in all of the Jurisdictions where the Requested Relief is relied upon and, accordingly, upon the issuance of a receipt for the final simplified prospectus (the Prospectus), the Fund will become a reporting issuer in each of the Jurisdictions where the Requested Relief is relied upon.
The Fund will be divided into multiple classes of Units (each a Class), some of which will correspond to a cohort – a group of people born in a particular 3-year period or such other annual period as determined by the Filer (each a Decumulation Cohort, and each such Class within a Decumulation Cohort, a Decumulation Class) – and some of which may be purchased by any person (each an Accumulation Class). The Prospectus will include indicative returns based on certain assumptions, including the mortality experience anticipated for holders of Units corresponding to a Decumulation Cohort based on a widely recognized mortality table.
The Fund seeks to provide unitholders with the opportunity to invest in a conservative investment portfolio comprised of investments in a broad range of asset classes which may include fixed income, equity, derivative instruments, inflation sensitive securities and cash. In respect of the Classes corresponding to the Decumulation Cohorts, the Fund also seeks to provide lifetime income paid through monthly cash distributions. The Fund’s ability to meet its investment objectives is dependent, in part, on the mortality of unitholders within each Class corresponding to a Decumulation Cohort and the investment returns achieved.
Units of each Class may be purchased on a daily basis at a price equal to the NAV per Unit of that Class.
Units may be redeemed on a daily basis at the election of a unitholder and, in the case of a Decumulation Class, by the Filer on receipt of notice of a unitholder’s death.
Pursuant to a redemption of Accumulation Class Units, the Fund will pay proceeds of redemption in cash for each Accumulation Class Unit so redeemed in an amount per Unit based on the NAV per Unit of such Accumulation Class less any costs associated with the redemption, including commissions, wire transfer fees and such other costs charged to the Fund by third parties.
Pursuant to a redemption of Decumulation Class Units, the Fund will pay proceeds of redemption in cash for each Unit so redeemed in an amount per Unit equal to the lesser of (i) the original purchase price of each Unit so redeemed less the aggregate of all cash distributions paid in respect of such Units prior to the redemption date, and (ii) the NAV per Unit of the Decumulation Class of Units so redeemed as of such redemption date less any costs associated with the redemption, including commissions, wire transfer fees and such other costs charged to the Fund by third parties (the Decumulation Class Redemption Price). Accordingly, the Decumulation Class Redemption Price that may apply to a redemption of Decumulation Class Units of the Fund upon a death or voluntary redemption may be less than the NAV per Unit.
Subsection 10.3(1) of NI 81-102 provides that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the NAV of a security of that class, or series of a class, next determined after the receipt by the mutual fund of the order.
The calculation of the Decumulation Class Redemption Price is an essential feature of the Fund and fundamental to the understanding of how returns are, in part, generated. Absent the Redemption Price Relief, the Fund may not be able to achieve its investment objective in respect of the Decumulation Classes to provide lifetime income paid through monthly cash distributions.
To ensure that the departure from conventional redemption pricing is appropriately disclosed, the description of the method by which the Decumulation Class Redemption Price will be determined will appear in bold face in a text box on the face page of the Prospectus and Fund Facts. The Filer will additionally include disclosure in the text box describing certain distinctive features of the Fund, including the type of investors for which Units may be suitable, distribution features, and clarifying that the Fund is not an annuity or other type of insurance contract or insurance company.
The Fund Facts of each Decumulation Class of the Fund will also include under the heading “How Has the Fund Performed?” charts showing targeted annual income payments and total returns to be received by a redeeming unitholder at death, together with a description of the related assumptions underlying the charts (the “Fund-Specific Disclosure”).
In addition to its inclusion in the Fund Facts, the Filer proposes to include the Fund-Specific Disclosure in the Prospectus as part of the discussion of risks associated with an investment in the Fund.
Absent the Fund Facts Disclosure Relief, it would not be permissible for the Fund to include the Fund-Specific Disclosure in the Fund Facts as this information is not specifically required or permitted by NI 81-101 to be included in a fund facts document that complies with Form 81-101F3.
The Filer submits that the Fund-Specific Disclosure is essential information for investors because it will assist investors in understanding the risks associated with an investment in the Fund and determining if Units are a suitable investment based on their investment objectives.
The Filer submits that investors will not be misled if the Fund-Specific Disclosure is included in the Fund Facts of each Decumulation Class of the Fund.
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 provided that, in the case of the Redemption Price Relief, the Fund pays the redemption price as described in paragraph 10 and 11 of the decision and includes on the cover page of the Prospectus and Fund Facts of each Decumulation Class of the Fund bold text box disclosure stating:
(i) the method by which the Decumulation Class Redemption Price will be determined, and
(ii) that amounts that Decumulation Class unitholders will receive upon death or voluntary redemption may be less than the Class NAV per unit, including $0.
“Darren McKall”
Darren McKall
Manager, Investment Funds and Structured Products
Ontario Securities Commission