Mutual Reliance Review System for Exemptive Relief Applications -- subdivided 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. 2.1(1), 3.3, 10.3, 10.4(1), 12.1(1), 14.1, 19.1.
March 20, 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
M SPLIT CORP.
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application (the Application) from the Filer for a decision under section 19.1 of 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) (the Requested Relief) in connection with the Class A and Priority Equity Shares to be issued by the Filer and described in the preliminary prospectus dated February 19, 2007 (the Preliminary Prospectus):
(a) subsection 2.1(1), which prohibits a mutual fund from purchasing a security of an issuer if, immediately after the transaction, more than 10 percent of the net assets of the mutual fund, taken at market value at the time of the transaction, would be invested in securities of the issuer;
(b) section 3.3, which prohibits a mutual fund or its security holders from bearing the costs of the preparation and filing of any prospectus;
(c) 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;
(d) 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;
(e) 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
(f) 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
(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 manager is Quadravest Inc. (the Manager), and its portfolio advisor is Quadravest Capital Management Inc. (Quadravest), the Filer's investment manager.
2. The Filer will make an offering (the Offering) to the public, on a best efforts basis, of Class A Shares and of Priority Equity Shares (collectively, the Shares or Units) in each of the provinces of Canada.
3. The Preliminary Prospectus has been filed with the Jurisdictions under Sedar Project No. 1052766.
4. The Class A Shares and the Priority Equity Shares are expected to be listed and posted for trading on the Toronto Stock Exchange (the TSX). An application for conditional listing approval has been made by the Filer to the TSX.
5. The expenses incurred in connection with the Offering (the "Expenses of the Offering") will be borne by the Filer rather than the promoters or Manager of the Filer, provided however, that such expenses will not exceed 1.5% of the gross proceeds of the Offering,.
6. The net proceeds of the offering will be invested in common shares (the Manulife Shares) of Manulife Financial Corporation (Manulife). The Manulife Shares and any cash held by the Filer will be the only assets of the Filer.
7. As disclosed in the Preliminary Prospectus, the Filer's objectives in respect of its Priority Equity Shares are to provide holders of the Priority Equity Shares with fixed cumulative preferential monthly cash dividends in the amount of $0.04375 per Priority Equity Share to yield 5.25% per annum on the original issue price; and, on or about December 1, 2014 or such other date as the Filer may terminate (the Termination Date), to pay such holders of such shares the original issue price of those shares on the Termination Date.
8. As disclosed in the Preliminary Prospectus, in respect of the Class A Shares, the Filer's objectives are to provide holders of Class A Shares with regular monthly cash dividends targeted to be $0.05 per Class A Share to yield 6.0% per annum on the original issue price; and, on or about the Termination Date, to pay holders of Class A Shares at least the original issue price of those shares.
9. The record date for shareholders of the Filer entitled to receive dividends will be established in accordance with the requirements of the TSX from time to time.
10. To supplement the dividends earned on the Portfolio and to reduce risk, the Filer will from time to time write covered call options in respect of all or part of the Manulife Shares.
11. The Priority Equity Shares and Class A 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 20 business days prior to the Retraction Date. The Filer will make payment for any shares retracted within 15 business days of the Retraction Date.
12. Holders of Priority Equity Shares whose shares are surrendered for retraction will be entitled to receive a price per share (the Priority Equity Share Retraction Price) equal to the lesser of (i) $10.00; and (ii) 96% of the net asset value per Unit determined as of the Retraction Date less the cost to the Filer of the purchase of a Class A Share in the market for cancellation.
13. Holders of Class A Shares whose shares are surrendered for retraction will be entitled to receive a price per share (the Class A Share Retraction Price) equal to 96% of the net asset value per Unit determined as of the Retraction Date less the cost to the Filer of the purchase of a Priority Equity Share in the market for cancellation.
14. Under the investment management agreement between the Filer and Quadravest, Quadravest is entitled to a management fee payable monthly in arrears at an annual rate equal to 0.55% of the Filer's Net Asset Value calculated as at the last Valuation Date in each month.
15. It will be the policy of the Filer to hold the Manulife Shares and to not engage in any trading of the Manulife Shares, except:
(a) to fund retractions or redemptions of Class A Shares and the Priority Equity Shares;
(b) following the receipt of the stock dividends of the Manulife Shares;
(c) in the event of a take-over bid for any of the Manulife Shares;
(d) if necessary, to fund any shortfall in the distribution on Priority Equity Shares or Class A Shares;
(e) to meet obligations of the Filer in respect of liabilities including extraordinary liabilities; or
(f) certain other limited circumstances including in connection with the Priority Equity Portfolio Protection Plan as described in the Preliminary Prospectus.
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 from the following requirements of NI 81-102:
(a) subsection 2.1(1) - to enable the Filer to invest all its net assets in the Manulife Shares, provided the Filer does not become an insider of Manulife as a result of such investment.
(b) section 3.3 -- to permit the Filer to bear the Expenses of the Offering provided that such expenses will not exceed 1.5% of the gross proceeds of the Offering;
(c) section 10.3 - to permit the Filer to calculate the Priority Equity Share Retraction Price and the Class A Share Retraction Price in the manner described in the Preliminary Prospectus and on the applicable Retraction Date, as defined in the Preliminary Prospectus, following the surrender of Priority Equity Shares and Class A Shares for retraction;
(d) subsection 10.4(1) - to permit the Filer to pay the Priority Equity Share Retraction Price and the Class A Share Retraction Price on the Retraction Payment Date, as defined in the Preliminary Prospectus;
(e) subsection 12.1(1) - to relieve the Filer from the requirements to file the prescribed compliance report; and
(f) 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.