Exemption from section 2.1 of National Instrument 81-105 Mutual Fund Sales Practices granted to labour sponsored investment fund corporation to permit it to pay certain specified distribution costs out of fund assets.
National Instrument 81-105 Mutual Fund Sales Practices.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
NATIONAL INSTRUMENT 81-105
MUTUAL FUND SALES PRACTICES
IN THE MATTER OF
ALGONQUIN POWER VENTURE FUND INC.
WHEREAS the Ontario Securities Commission (the "Commission") has received an application from Algonquin Power Venture 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 and the manager of the Fund to registered dealers shall not apply to the Fund;
AND WHEREAS the Fund has represented to the Commission as follows:
1. The Fund is a corporation incorporated under the Canada Business Corporations Act by Articles of Incorporation dated October 23, 2003.
2. The Fund has applied for registration as a labour sponsored investment fund corporation under the Community Small Business Investment Funds Act (Ontario) (the "Ontario Act").
3. When so registered, the Fund will be a prescribed venture capital corporation and a prescribed labour sponsored venture capital corporation under the Income Tax Act (Canada) (the "Tax Act"). In addition to maintaining its registration under the Ontario Act, the Fund may become a registered labour sponsored venture capital corporation (an "LSVCC") as defined in the Tax Act.
4. The Fund filed a preliminary prospectus (the "Preliminary Prospectus") under Sedar Project No. 584425 in Ontario on October 30, 2003 in connection with the initial public offering of its Class A shares to the public in Ontario. The Fund will be a mutual fund pursuant to the securities legislation of Ontario.
5. The Fund will primarily invest in small and medium-sized eligible Canadian businesses engaged in the electrical power generation, distribution and infrastructure sector with the objective of achieving predictable yield and long-term capital appreciation.
6. The International Union of Allied, Novelty & Production Workers, Local 905 is the sponsor of the Fund (the "Sponsor"). The manager of the Fund is Algonquin Power Venture Management Inc. (the "Manager"). The Sponsor and the Manager formed and organized the Fund. The administrator of the Fund is anticipated to be Unisen Inc. and the custodian of certain of the Fund's property is CIBC Mellon Global Securities Services Company.
7. The authorized capital of the Fund consists of an unlimited number of Class A shares, an unlimited number of Class B shares and an unlimited number of Class C shares, of which no Class A shares, 100 Class B shares and 100 Class C shares are currently issued and outstanding. The Sponsor is the registered and beneficial owner all of the Class B shares. The Manager is the registered and beneficial owner of all of the Class C shares.
8. As is disclosed in the Preliminary Prospectus, the following distribution costs (collectively, the "Distribution Costs") will be paid in the manner set forth below:
(a) the Manager will pay a sales commission equal to 6% of the selling price of each Class A Share subscribed for pursuant to subscriptions procured by registered dealers (the "Sales Commission"). Sales Commissions payable by the Manager will not be charged to or amortized by the Fund;
(b) the Fund will pay to each registered dealer having clients holding Class A Shares a servicing commission (the "Servicing Commission") of 1/12 of 0.5% of the total net asset value of the Class A Shares held by clients of those registered dealers, calculated monthly but paid quarterly at the end of each quarter; and
(c) the Fund will pay the Manager for marketing support services, an annual fee of 0.50% of the net asset value of the Fund. The Manager, may, at its option, retain a third-party marketing firm to assist in providing marketing support services and pay such marketing firm a portion or all of the annual marketing support services fee.
9. To reimburse the Manager for debt incurred to fund the payment of Sales Commissions, the Fund will pay the Manager a monthly distribution services fee equal to, in respect of any particular month, an amount equal to 0.092% of the original Class A Share issue price for such month.
10. The structural aspects of the Fund relating to the payment of commissions are consistent with the legislative requirements contemplated under the Ontario Act. Gross investment amounts will be paid to the Fund as opposed to, for example, first deducting a commission and remitting the net investment amount to the Fund, in order to ensure that the entire amount paid by an investor is eligible for applicable federal and Ontario tax credits which arise on the purchase of the Class A Shares of the Fund. Section 25(4) of the Ontario Act, for example, provides that the provincial tax credit is a defined percentage of the amount received by the corporation as equity capital on the issue. Accordingly, it is tax efficient for the Manager and the Fund to pay the Distribution Costs directly.
11. Gross investment amounts will be contributed to the Fund in respect of each subscription. This is to ensure that the entire subscription amount contributed by the investor is counted for the purpose of the applicable federal and provincial tax credits in connection with the purchase of Class A Shares.
12. The Fund undertakes to comply with all other provisions of NI 81-105. In particular, the Fund undertakes that all Distribution Costs paid by it and the Manager will be compensation permitted to be paid to participating dealers under NI 81-105.
13. The payment of commissions on the sale of Class A Shares by the Manager is an event contemplated under the Ontario Act and the Tax Act.
AND WHEREAS the Commission is satisfied that to do so would not be prejudicial to the public interest;
THE DECISION of the Commission under section 9.1 of NI 81-105 is that the Fund shall be exempt from section 2.1 of NI 81-105 to permit the Fund to pay the Servicing Commission, provided that:
(a) The Servicing Commission is otherwise permitted by, and paid in accordance with, NI 81-105;
(b) the Fund, in its financial statements, will expense the Servicing Commission in the fiscal period when incurred;
(c) the summary section of the preliminary prospectus has full, true and plain disclosure explaining to investors that they pay the Servicing Commission indirectly, as the Fund pays the Servicing Commission. This summary section must be placed within the first 10 pages of the final prospectus; and
(d) this exemption shall cease to be operative with respect to the Commission on the date that a rule or regulation replacing or amending section 2.1 of NI 81-105 comes into force.
December 12, 2003.
"Robert W. Davis"
"Paul M. Moore"