Mutual Reliance Review System for Exemptive Relief Applications -- sub--divided offering exempted from certain requirements of National Instrument 81-102 Mutual Funds since issuer is fundamentally different from a conventional mutual fund.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.6(a), 10.3, 10.4(1), 12.1(1), 14.1.
February 27, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,
NUNAVUT AND YUKON
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
COPERNICAN INTERNATIONAL FINANCIAL
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under section 19.1 of National Instrument 81-102 -- Mutual Funds (the "Legislation") that the following sections of the Legislation (collectively, the "Requested Relief") will not apply to the Filer with respect to the Preferred Shares and the Class A Shares (each as defined below):
(a) subsection 2.6(a), which prohibits a mutual fund from borrowing cash or providing a security interest over any of its portfolio assets except in compliance with subsection 2.6(a);
(b) section 10.3, which requires that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the net asset value of a security of that class, or series of class, next determined after the receipt by the mutual fund of the order;
(c) subsection 10.4(1), which requires that a mutual fund shall pay the redemption price for securities that are the subject of a redemption order within three business days after the date of calculation of the net asset value per security used in establishing the redemption price;
(d) subsection 12.1(1), which requires a mutual fund that does not have a principal distributor to complete and file a compliance report, and accompanying letter of the auditor, in the form and within the time period mandated by subsection 12.1(1); and
(e) section 14.1, which requires that the record date for determining the right of securityholders of a mutual fund to receive a dividend or distribution by the mutual fund shall be calculated in accordance with section 14.1.
Under the Mutual Reliance Review System for Exemptive Relief Applications ("MRRS"):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Defined terms contained in National Instrument 14-101 -- Definitions have the same meaning in this decision document unless they are otherwise defined in this decision document.
This decision is based on the following facts represented by the Filer:
1. The Filer is a mutual fund corporation incorporated under the laws of Ontario pursuant to articles of incorporation dated January 24, 2007.
2. Copernican Capital Corp. (the "Manager") will be the manager of the Filer and will be responsible for providing or arranging for the provision of administrative services required by the Filer. The head office of the Manager is in Ontario.
3. The Filer will be issuing preferred shares (the "Preferred Shares") and class A shares (the "Class A Shares") (together referred to as the "Shares").
4. The offerings of Preferred Shares and Class A Shares by the Filer are a one-time offering and the Filer will not continuously distribute the Shares.
5. The Filer's investment objectives with respect to the Preferred Shares are:
(a) to provide holders of Preferred Shares with fixed cumulative preferential quarterly cash distributions in the amount of $0.125 per Preferred Share representing a yield on the issue price of the Preferred Shares of 5.0% per annum; and
(b) to return the original issue price of the Preferred Shares at the time of redemption of such shares on December 2, 2013; and
with respect to the Class A Shares are:
(a) to provide holders of Class A Shares with regular quarterly cash distributions targeted to be $0.20 per Class A Share representing a yield on the issue price of the Cass A Shares of 8.0% per annum; and
(b) to provide holders of the Class A Shares with the opportunity for leveraged growth in net asset value per Class A Share after the repayment of the original issue price of the Preferred Shares.
6. The Shares will be redeemable at the option of the holder on a monthly and annual basis at a price computed by reference to the value of a proportionate interest in the net assets of the Company. As a result, the Company will be a "mutual fund" under applicable securities legislation.
7. The entire proceeds of the offering will be invested in an actively managed diversified portfolio of securities (the "Portfolio") consisting primarily of equity securities of some of the world's leading retail bank, life insurance and investment management financial services companies based outside North America.
8. The Filer may, from time to time, hold a portion of its assets in cash equivalents. The Filer may also, from time to time, utilize such cash equivalents to provide cover in respect of the writing of cash covered put options, which is intended to generate additional returns and to reduce the net cost of acquiring the securities subject to the put options.
9. A preliminary prospectus of the Filer dated January 24, 2007 (the "Preliminary Prospectus") has been filed with the securities regulatory authorities in each of the provinces and territories of Canada and the Ontario Securities Commission, as principal regulator, has issued a preliminary decision document dated January 24, 2007.
10. The Filer is authorized to borrow an amount not exceeding 5% of the total assets of the Filer at the time of borrowing, for the purpose of paying redemptions and for working capital purposes. The Filer may pledge its assets to secure the borrowings.
11. The Shares are expected to be listed and posted for trading on the Toronto Stock Exchange (the "TSX").
12. The description of the redemption process in the Preliminary Prospectus contemplates that the redemption price for the Preferred Shares and the Class A Shares will be determined as of the redemption date, being the last business day of the month (the "Redemption Date"). As requests for redemptions may be made at any time during the month and are subject to a cut-off date (at least five business days prior to the Redemption Date) redemptions may not be implemented at a price equal to the net asset value next determined after receipt of the redemption request.
13. The redemption procedures described in the Preliminary Prospectus provide that shareholders will receive payment on or before the eighth business day following the applicable Redemption Date.
14. The Preferred Shares have been provisionally rated Pfd-2 (low) by Dominion Bond Rating Service Limited.
15. The Filer will make quarterly distributions to holders of the Preferred Shares and the Class A Shares. The record date for shareholders entitled to receive such distributions will be determined in accordance with the requirements of the TSX.
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The Decision of the Decision Makers under the Legislation is that the Requested Relief is granted on the following basis:
(a) Subsection 2.6(a) - to enable the Filer to obtain a credit facility for working capital purposes and provide a security interest over its assets, as stated in paragraph 10 above, so long as the outstanding amount of any such borrowings of the Filer does not exceed 5% of the net assets of the Filer at the time of borrowing;
(b) Section 10.3 - to permit the Filer to calculate the redemption price for the Shares in the manner described in the Preliminary Prospectus and on the applicable Redemption Date as defined in the Preliminary Prospectus;
(c) Subsection 10.4(1) - to permit the Filer to pay the redemption price for the Preferred Shares and the Class A Shares on the Redemption Payment Date, as defined in the Preliminary Prospectus;
(d) Subsection 12.1(1) - to relieve the Filer from the requirement to file the prescribed compliance reports; and
(e) Section 14.1 - to relieve the Filer from the requirement relating to the record date for the payment of dividends or other distributions, provided that it complies with the applicable requirements of the TSX.