Mutual Reliance Review Systemfor Exemptive Relief Applications - Relief granted from requirementto deliver annual audited financial statements to March 31,2002, and where applicable, from the requirement to file anddeliver the annual report for the period ended March 31, 2002.
Applicable Ontario StatutoryProvisions
Securities Act, R.S.O. 1990,c. S.5, as am. s. 79, ss. 80(b)(iii).
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ONTARIO, BRITISH COLUMBIA,ALBERTA, QUÉBEC, SASKATCHEWAN,
MANITOBA, NOVA SCOTIA ANDNEWFOUNDLAND AND LABRADOR
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
HIGH INCOME PRINCIPAL ANDYIELD SECURITIES CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the local securitiesregulatory authority or regulator (the "Decision Maker")in each of Ontario, British Columbia, Alberta, Saskatchewan,Manitoba, Québec, Nova Scotia and Newfoundland and Labrador(the "Jurisdictions") has received an applicationfrom High Income Principal And Yield Securities Corporation(the "Company") for a decision under the securitieslegislation (the "Legislation") of the Jurisdictionsthat the Company be exempted from delivering to security holdersannual financial statements and be exempted from the preparation,filing and delivery of an annual report, where applicable, forthe period ended March 31, 2002, as would otherwise be requiredpursuant to applicable Legislation;
AND WHEREAS pursuantto the Mutual Reliance Review System for Exemptive Relief Applications(the "System"), the Ontario Securities Commissionis the principal regulator for this application;
AND WHEREAS the Companyhas represented to the Decision Maker that:
1. The Company was incorporatedunder the laws of the province of Ontario on December 7, 2001.The fiscal year-end of the Company is March 31.
2. The Company is authorizedto issue an unlimited number of Class A Shares, SubordinateShares, Equity Shares and Preferred Shares of which, as atthe date hereof, 1,000 Class A Shares, 375,000 SubordinateShares, 2,670,000 Equity Shares and 2,670,000 Preferred Sharesare outstanding. The Preferred Shares and Equity Shares ofthe Company are together referred to as the "Shares".
3. The Class A Shares arethe only voting shares of the Company. The holders of theShares and Subordinate Shares many only vote in certain circumstances.Lawrence Asset Management Inc. ("LAMI") owns 500Class A Shares, and two individuals who are both officersand directors of the Company each hold 250 Class A Shares.LAMI is the promoter of the Company as well as the manager.
4. The Company became a reportingissuer or the equivalent in each of the Jurisdictions by virtueof it filing with the securities regulatory authority in eachof the provinces of Canada a long form prospectus dated February27, 2002 (the "Prospectus") qualifying the issuanceof up to a maximum of 4,000,000 Preferred Shares and up toa maximum of 4,000,000 Equity Shares (the "Offering")(plus up to 10% of the number of each of Preferred Sharesand Equity Shares issued at the closing of the Offering).In addition, the Prospectus disclosed that the Company wouldcomplete a private placement of Subordinate Shares to LAMI,the proceeds of which would be invested in the Managed EquityPortfolio (defined below) so that the funds available forinvestment in the Managed Equity Portfolio, after expensesof the Offering, would be approximately 1.4 times the grossproceeds of the Offering of the Equity Shares.
5. On March 19, 2002, theCompany issued 2,670,000 Preferred Shares and 2,670,000 EquityShares at an issuance price of $25.00 per Preferred Shareand $20.00 per Equity Share pursuant to the closing of theOffering. The Shares were listed on The Toronto Stock Exchangeon March 18, 2002.
6. Simultaneously with theclosing of the Offering, the Company completed a private placementof 375,000 Subordinate Shares to LAMI at an issuance priceof $20.00 per Subordinate Share (the "Private Placement").
7. The principal undertakingof the Company is the holding of a diversified portfolio consistingprincipally of equity securities issued by companies whichform part of the S&P/TSE 60 Index or the Standard &Poor's 500 Composite Stock Price Index (the "ManagedEquity Portfolio") and a portfolio of equity securitiesagreed upon by the Company and an affiliate of Canadian ImperialBank of Commerce that the Company will acquire with approximately40% of the gross proceeds of the Offering and the PrivatePlacement.
8. The Shares and the SubordinateShares are redeemable at the option of the holder on a monthlybasis at a price computed by reference to the value of a proportionateinterest in the net assets of the Company. As a result, theCompany is a "mutual fund" under the securitieslegislation of certain provinces of Canada (excluding theProvince of Québec).
9. The Prospectus includedan audited balance sheet of the Company as at February 27,2002 and an unaudited pro forma balance sheet as at February27, 2002 prepared on the basis of the completion and saleof up to 4,000,000 Preferred Shares and up to 4,000,000 EquityShares, the maximum number of Shares of the Company beingqualified for distribution by the Prospectus as well as thePrivate Placement of up to 625,000 Subordinate Shares. OnMarch 19, 2002, the Company actually issued 2,670,000 PreferredShares and 2,670,000 Equity Shares pursuant to the Offeringand completed a private placement of 375,000 Subordinate Shares.A press release was issued by the Company on March 19, 2002announcing to the public the actual number of Shares thatwere issued by the Company pursuant to the Offering and theactual number of Subordinate Shares that were issued by wayof private placement.
10. Although the Company cameinto existence on December 7, 2001, up to the time of closingof the Offering and the Private Placement, the Company hadno significant assets or operations. The Company had onlyseven business days of operations after the closing of theOffering and Private Placement prior to the end of the periodfor which the annual financial statements would be required.
11. The benefit to be derivedby the security holders of the Company from receiving theannual financial statements and the annual report, where applicable,would be minimal given (i) the extremely short period fromthe date of the Prospectus to the end of the applicable period;(ii) that the Company had not yet fully invested its fundsby the end of the applicable period; (iii) the disclosurealready provided in the Prospectus; and (iv) there were nomaterial changes in the affairs of the Company from March19, 2002 to the date of this application.
12. The expense to the Companyof printing and delivering to its security holders the annualfinancial statements and of preparing, filing and deliveringthe annual report, where applicable, would not be justifiedin view of the minimal benefit to be derived by the securityholders from receiving such statements and would be detrimentalto security holders in light of the unnecessary costs thatwould as a consequence be incurred by the Company.
AND WHEREAS pursuantto the System, this MRRS Decision Document evidences the decisionof each Decision Maker (collectively, the "Decision");
AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;
IT IS HEREBY DECIDEDby the Decision Makers pursuant to the Legislation that theCompany is exempted from delivering to its security holdersannual audited financial statements and is exempted from, whereapplicable, the preparation, filing and delivering to its securityholders of the annual report for the period ended March 31,2002.
July 18, 2002.
"Paul M. Moore" "RobertW. Korthals"