Exemption granted to labour sponsored investment fund corporation to permit it to pay certain specified distribution costs out of fund assets contrary to section 2.1 of National Instrument 81-105 Mutual Fund Sales Practices. Exemption granted on the condition that the distribution costs so paid are permitted by, and otherwise paid in accordance with the National Instrument.
Securities Act, R.S.O. 1990, c. S.5, as amended.
National Instrument 81-105 Mutual Fund Sales Practices.
IN THE MATTER OF
THE SECURITIES ACT (ONTARIO) R.S.O.
1990, C.S-5, AS AMENDED
IN THE MATTER OF
NATIONAL INSTRUMENT 81-105
MUTUAL FUND SALES PRACTICES
IN THE MATTER OF
LAWRENCE ENTERPRISE FUND INC.
WHEREAS the Ontario Securities Commission (the Commission) has received an application (the Application) from Lawrence Enterprise Fund Inc. (the Fund) for a decision pursuant to section 9.1 of National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105) that the prohibition contained in section 2.1 of NI 81-105 against the making of certain payments by the Fund to participating dealers shall not apply to the Fund;
AND WHEREAS the Commission has considered the Application and the recommendation of the staff of the Commission;
AND WHEREAS the Fund and Lawrence Asset Management Inc. (the Manager) have represented to the Commission as follows:
1. The Fund is a corporation formed under the laws of Canada on October 31, 2001 and is a mutual fund as defined in the legislation under the Act. The Fund is a reporting issuer under the Act.
2. The Fund is registered as a labour sponsored investment fund corporation under the Community Small Business Investment Funds Act (Ontario), as amended, as a labour-sponsored venture capital corporation under the Equity Tax Credit Act (Nova Scotia), and as a labour-sponsored venture capital corporation under the Income Tax Act (Canada), as amended.
3. The authorized capital of the Fund has consisted of an unlimited number of two series of Class A Shares, designated as Class A Shares, Series I and Class A Shares, Series II and 25,000 Class B Shares. All of the issued and outstanding Class B Shares are owned by the sponsor of the Fund, Canadian Air Traffic Control Association, Local 5454.
4. As of December 31, 2003, the Fund intends to cease distribution of the Class A, Series I Shares and Class A, Series II Shares. The Fund has filed articles of amendment designating two new series of Class A Shares, the Class A Shares, Series III and Class A Shares, Series IV (the New Class A Shares). The Fund has filed a prospectus with the Commission in respect of the New Class A Shares (the Prospectus), and anticipates obtaining a final receipt therefore by December 31, 2003.
5. The Fund has retained the Manager to act as manager of the Fund.
6. The Manager is a subsidiary of Lawrence & Company Inc. The Fund and the Manager have retained Lawrence & Company Inc. to assist in screening and evaluating investment opportunities of the Fund.
7. The administrator is Mavrix Fund Management Inc. The fund administrator is responsible for providing administration and client services, shareholder reporting and transfer agency services to the Fund.
8. The Fund is a mutual fund which makes investments in small and medium-sized Canadian businesses which are eligible investments for the Fund under the Ontario Act.
9. The New Class A Shares of the Fund will be distributed in the Province of Ontario following receipt of a receipt for the final prospectus.
10. Section 2.1 of NI 81-105 prohibits the Fund, in connection with the distribution of its securities, from making payments or providing benefits to dealers participating in the distribution of its securities, including the payment of service fees to, or the reimbursements of costs or expenses incurred or to be incurred by, such dealers.
11. There is no direct sales charge payable by investors on the purchase of New Class A Shares. However, the Fund and the Manager propose to pay directly to participating dealers certain costs associated with the distribution of the New Class A Shares. These costs are:
(a) with respect to the distribution of Class A Shares, Series III:
(i) a commission of 6% of the original issue price (the "6% Sales Commission"), paid by the Manager;
(ii) an amount equal to 4% of the original issue price of the Class A Shares, Series III as a long-term prepayment of service fees for eight years from the date of issue of the shares, paid by the Manager; and
(iii) a service fee (the "Service Fee") after the eighth anniversary of the date of the issue of the shares of 0.50% annually of the net asset value of the Class A Shares, Series III held by clients of the sales representatives of the dealers, paid by the Fund; and
(b) with respect to the distribution of Class A Shares, Series IV:
(i) a 6% Sales Commission, paid by the Manager; and
(ii) a Service Fee equal to 0.50% annually of the net asset value of the Class A Shares, Series IV held by clients of the sales representatives of the dealers, paid by the Fund.
12. In addition, the Fund may also enter into co-operative marketing programs with certain registered dealers providing for the reimbursement by the Fund of certain expenses (the "Co-op Expenses") incurred by such dealers in promoting sales of New Class A Shares.
13. Payments of the distribution costs described in representations 11 and 12 are permitted under NI 81-105, except for the Service Fees with respect to the Class A Shares, Series III and Series IV, and the Co-op Expenses.
AND WHEREAS the Commission is satisfied that to do so would not be prejudicial to the public interest;
NOW THEREFORE, pursuant to section 9.1 of NI 81-105, the Commission hereby exempts the Fund from section 2.1 of NI 81-105 to permit the Fund to pay the Service Fees with respect to Class A Shares, Series III and Series IV, and the Co-op Expenses, provided that:
(a) the Services Fees with respect to the Class A Shares, Series III and Series IV, and the Co-op Expenses are otherwise permitted by, and paid in accordance with, NI 81-105;
(b) the Fund will in its financial statements expense the Service Fees with respect to Class A Shares, Series III and Series IV, and the Co-op Expenses in the fiscal period when incurred; and
(c) this Exemption shall cease to be operative with respect to the Commission on the date that a rule replacing or amending section 2.1 of NI 81-105 comes into force.
December 30, 2003.
"Robert L. Shirriff"
"Paul K. Bates"