Mutual Reliance System for Exemptive Relief Applications -- Exemptive relief granted to an exchange traded fund from certain mutual fund requirements and restrictions on: organizational costs, calculation and payment of redemptions, preparation of compliance reports, and date of record for payment of distributions -- Since investors will generally buy and sell units through the TSX, there are adequate protections and it would not be prejudicial to investors -- National Instrument 81-102 -- Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 -- Mutual Funds, ss. 3.3, 10.3, 10.4(1), 12.1(1), 14.1, 19.1.
February 27, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NOVA SCOTIA,
NEW BRUNSWICK, NEWFOUNDLAND AND
LABRADOR AND PRINCE EDWARD ISLAND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
CORE NORTH AMERICAN DIVIDEND SPLIT CORP.
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 the securities legislation of the Jurisdictions (the "Legislation") that exempts the Filer from the following requirements of National Instrument 81-102 -- Mutual Funds ("NI 81-102") in connection with the Class A Shares and the Preferred Shares (as defined below) to be issued by the Filer and described in the preliminary prospectus dated January 26, 2007 (the "Preliminary Prospectus"):
(a) section 3.3, which prohibits a mutual fund or its security holders from bearing the costs of the preparation and filing of any prospectus;
(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 security holders 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
(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 unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. The Filer is a mutual fund corporation established under the laws of Ontario. The Filer's promoter and investment manager is Mulvihill Capital Management Inc. ("MCM"), and its manager is Mulvihill Fund Services Inc. (the "Manager"), a wholly-owned subsidiary of MCM. The head office of the Manager is located in the province of Ontario.
2. The Filer will make an offering (the "Offering") to the public, on a best efforts basis, of class A shares (the "Class A Shares") and preferred shares (the "Preferred Shares") (collectively, the "Shares") in each of the provinces of Canada. A unit will consist of one Class A Share and one Preferred Share (a "Unit").
3. The Class A Shares and the Preferred Shares are expected to be listed and posted for trading on the Toronto Stock Exchange (the "TSX"). An application requesting conditional listing approval has been made by the Filer to the TSX.
4. The expenses incurred in connection with the Offering (the "Expenses of the Offering"), will be borne by the Filer provided, however, that such expenses will not exceed 1.5% of the gross proceeds of the Offering.
5. The Filer's objectives in respect of the Class A Shares are: (i) to provide holders of Class A Shares with monthly cash distributions in an amount targeted to be 6.00% per annum on the net asset value of the Class A Shares; and (ii) to preserve and grow the net asset value per Unit.
6. The Filer's objectives in respect of the Preferred Shares are: (i) to provide holders of Preferred Shares with fixed cumulative preferential quarterly cash distributions in the amount of $0.125 per Preferred Share ($0.50 per year) representing a yield on the issue price of the Preferred Shares of 5.00% per annum; and (ii) to return the original issue price of $10.00 per Preferred Share to holders of Preferred Shares at the time of redemption of such shares on June 30, 2014 (the "Termination Date").
7. The net proceeds of the Offering will be invested in a blue-chip portfolio consisting of large capitalization, dividend-paying North American companies from across multiple industry sectors that have strong fundamentals and excellent long-term track records of earnings growth, dividend growth and share price appreciation (the "Portfolio").
8. To generate additional distributable income for the Filer, the Filer may from time to time write covered call options in respect of all or part of the securities in the Portfolio.
9. The Class A Shares and the Preferred Shares may be surrendered for retraction at any time and will be retracted on a monthly basis on the last business day of each month (a "Retraction Date"), provided such shares are surrendered for retraction not less than 10 business days prior to the Retraction Date. The Filer will make payment for any shares retracted within 15 business days of the Retraction Date.
10. Shareholders also have an annual retraction right under which they may concurrently retract an equal number of Class A Shares and Preferred Shares on the June Retraction Date in each year. The price paid by the Fund for such a concurrent retraction will be equal to the net asset value per Unit calculated as of such date, less any costs associated with the retraction.
11. The retraction payments for the Class A Shares and the Preferred Shares surrendered for retraction on the Retraction Date will be calculated at a discount to the net asset value per Unit of the Filer on the applicable Retraction Date in the manner described in the Preliminary Prospectus.
12. Any Class A Shares and Preferred Shares outstanding on the Termination Date will be redeemed by the Filer on such date.
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 an exemption is granted from the following requirements of NI 81-102:
(a) section 3.3 - to permit the Filer to bear the Expenses of the Offering as described in paragraph 4 above;
(b) section 10.3 - to permit the Filer to calculate the retraction price for the Class A Shares and the Preferred Shares in the manner described in the Preliminary Prospectus and on the applicable Retraction Date as defined in the Preliminary Prospectus, following the surrender of Class A Shares and Preferred Shares for retraction;
(c) subsection 10.4(1) - to permit the Filer to pay the retraction price for the Class A Shares and the Preferred Shares on the Retraction 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 payment of dividends or other distributions of the Filer, provided that it complies with the applicable requirements of the TSX.