Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from the requirement that the initial and renewal prospectus of certain investment funds (commodity pools) in continuous distribution include annual and interim financial statements and certain selected financial information -- Relief to incorporate the financial statements by reference into the prospectus -- Inclusion of previously publicly disclosed financial information in the renewal prospectus of the commodity pools would not provide any additional disclosure to investors that is not already publicly available on SEDAR.
Applicable Legislative Provisions
Ontario Securities Commission Rule 41-502 Prospectus Requirements for Mutual Funds, ss. 5.2, 5.4.
October 31, 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, NORTHWEST TERRITORIES,
YUKON AND NUNAVUT
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
FRONT STREET OPPORTUNITY FUNDS LTD. AND
FRONT STREET CAPITAL 2004
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from Front Street Opportunity Funds Ltd. (the Company) and Front Street Capital 2004 (the Manager), the manager of the commodity pools listed on Appendix A (individually an Existing Fund and collectively, the Existing Funds) and any additional commodity pools that the Manager may establish after the date of this decision which are operated on a similar basis to the Existing Funds (individually the Future Fund and collectively, the Future Funds and together with the Existing Funds, the Funds) for a decision under the securities legislation (the Legislation) of the Jurisdictions providing an exemption (the Requested Relief) for the Funds from the requirements in the Legislation that the initial prospectus and renewal prospectuses of the Funds include:
1. the annual financial statements of the Funds;
2. the auditor's report relating to the annual financial statements of the Funds; and
3. the interim financial statements of the Funds;
(collectively, the Prospectus Financial Disclosure Requirements).
Under the Mutual Reliance Review System for Exemptive Relief Applications (MRRS):
1. the Ontario Securities Commission (OSC) is the principal regulator for this application; and
2. this MRRS decision document evidences the decision of each Decision Maker.
Terms defined in National Instrument 14-101 - Definitions and National Instrument 81-106 - Investment Fund Continuous Disclosure (NI 81-106) have the same meaning in this decision unless they are defined in this decision.
This MRRS decision document is based on the following facts represented by the Manager:
1. The Company is a mutual fund under the Legislation and each Fund will be considered to be a separate mutual fund under the Legislation as each Fund will maintain its own separate portfolio of assets within the Company.
2. Each Fund will be a reporting issuer in each Jurisdiction.
3. Each Fund will be a commodity pool as such term is defined in section 1.1 of National Instrument 81-104 - Commodity Pools (NI 81-104), in that each Fund has adopted or will adopt fundamental investment objectives that permit that Fund to use or invest in specified derivatives in a manner that is not permitted under National Instrument 81-102 - Mutual Funds (NI 81-102).
4. Each Fund will be subject to NI 81-102, subject to the exceptions relating to commodity pools, as such exceptions are outlined in NI 81-104, and any relief granted to the Funds.
5. Each Fund will be subject to NI 81-106, and will be subject to other rules applicable to mutual funds, including National Instrument 81-107 - Independent Review Committee for Investment Funds.
6. The Manager or an affiliate of the Manager will be the manager of the Funds.
7. Front Street Investment Management Inc. (FSIMI), a corporation incorporated under the laws of Ontario, has been or will be retained by the Manager to provide investment advisory and portfolio management services to each Fund. FSIMI is registered in the categories of investment counsel and portfolio manager under the Securities Act (Ontario) (the OSA).
8. In order to achieve its investment objective, each Fund will invest in equity securities and/or other financial instruments, including derivatives.
9. Securities of each Fund will be offered on a continuous basis in each Jurisdiction. Each Fund must therefore file a renewal prospectus on an annual basis in each Jurisdiction in accordance with Section 62 of the OSA and similar provisions in force in the other Jurisdictions.
10. Section 1.3(b) of National Instrument 81-101 - Mutual Fund Prospectus Disclosure (NI 81-101) provides that NI 81-101 does not apply to commodity pools. As each Fund will be a commodity pool, in qualifying and offering its securities for distribution, the Funds cannot therefore rely on the form of simplified prospectus described at section 2.1 of NI 81-101 (the Simplified Prospectus Form). Rather, each Fund will offer its securities by way of a long form prospectus prescribed by the Legislation (Long Form Prospectus).
11. Financial information of an issuer cannot be incorporated by reference into a Long Form Prospectus. As a result, absent the Requested Relief, the Funds cannot incorporate by reference the financial information required by the Prospectus Financial Disclosure Requirements into the initial or the renewal prospectus by which its securities are, or will be, offered.
12. The initial prospectuses of the Funds will include audited opening Statements of Net Assets for each Fund other than Front Street Resource Opportunities Fund (Resource Fund) and Front Street Yield Opportunities Fund (Yield Fund). Resource Fund and Yield Fund have been in existence for more than twelve months. Consequently, they would have been required under the Legislation to include their historical financial statements in the initial prospectus.
13. The Funds intend to comply with the preparation, filing, and delivery requirements relating to financial statements as required by NI 81-106 (the Investment Fund Financial Disclosure Requirements).
14. All financial disclosure prepared in accordance with the Investment Fund Financial Disclosure Requirements is, and will be, publicly available for examination by existing and potential securityholders of the Funds on the System for Electronic Document Analysis and Retrieval (SEDAR) and on the Internet at the Funds' or the Manager's website at www.frontstreetcapital.com.
15. By complying with the Investment Fund Financial Disclosure Requirements, the Funds will have filed on SEDAR or publicly disseminated (in respect of quarterly portfolio disclosure) all relevant financial information for all periods that would, absent the Requested Relief, be reflected in the financial disclosure that would otherwise be required to be included as part of the initial prospectus and any renewal prospectuses of the Funds pursuant to the Prospectus Financial Disclosure Requirements.
16. The quantity of previously disclosed financial information in the renewal prospectuses will continue to increase as Future Funds are added. The Manager and the Funds would be required to allocate a significant amount of resources in preparing and including this large volume of financial information in the renewal prospectuses. This financial information would not provide any additional disclosure to investors that would not already be publicly available. Rather, this financial information would make the renewal prospectus of the Funds unnecessarily lengthy and cumbersome, and likely less "user-friendly" for investors.
17. Given that the financial statements required by the Prospectus Financial Disclosure Requirements will be publicly available on SEDAR, the Manager believes that there is no prejudice to investors by granting the Requested Relief. Furthermore, the Requested Relief will allow the Funds to be treated equally with other mutual funds in continuous distribution that distribute securities using the Simplified Prospectus Form.
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 provided that:
1. The initial prospectus of each Fund other than Front Street Resource Opportunities Fund and Front Street Yield Opportunities Fund includes an audited opening statement of net assets of that Future Fund;
2. as of the date of the renewal prospectus of a Fund, the Fund has complied with the Investment Fund Financial Disclosure Requirements for all financial periods that would, absent the Requested Relief, otherwise be included in the renewal prospectus of the Fund;
3. the initial prospectus and renewal prospectus of a Fund, by means of disclosure on the cover page and in the body of the prospectus, incorporates by reference the following:
(a) the most recently filed comparative annual financial statements of the Fund, together with the accompanying report of the auditor, filed either before or after the date of such prospectus;
(b) the most recently filed interim financial statements of the Fund that were filed before or after the date of the prospectus and that pertain to a period after the period to which the annual financial statements then incorporated by reference in the prospectus pertain;
4. the disclosure in the body of the prospectus referred to in paragraph 3 above, includes the following statement in substantially the following words and the disclosure on the cover page of the prospectus referred to in paragraph 3 above includes the following statement or an abbreviated version of the following statement with a cross-reference to the disclosure in the body:
"Additional information about the Fund is available in the following documents:
-- the most recently filed annual financial statements [may specify the date of the annual financial statements, if appropriate];
-- any interim financial statements filed after those annual financial statements [may specify the date of the interim financial statements, if appropriate];
These documents are incorporated by reference into this prospectus, which means that they legally form part of this document just as if they were printed as part of this document. You can get a copy of these documents, at your request, and at no cost, by calling [toll-free/collect] [insert the toll-free telephone number or telephone number where collect calls are accepted] or from your dealer.
[If applicable] These documents are available on the Manager's Internet site at [insert Manager's Internet site address], or by contacting the Manager at [Manager's email address].
These documents and other information about the Fund are available on the Internet at www.sedar.com.";
5. an auditor's consent to the incorporation of the auditor's report on the comparative annual financial statements referred to under paragraph 3(a) above into the prospectus of a Fund is filed with such prospectus and filed with any subsequently filed comparative annual financial statements;
6. the certificate of a Fund that is required to be included in the initial prospectus and renewal prospectus of such Fund pursuant to the Legislation states the following:
"This prospectus, together with the documents incorporated herein by reference, constitutes full, true and plain disclosure of all material facts relating to the securities offered by this prospectus as required by the securities legislation of [insert name of each jurisdiction in which qualified]. [Insert the following additional language if offering made in Québec]. For the purpose of the Province of Québec, this prospectus, together with documents incorporated herein by reference and as supplemented by the permanent information record, contains no misrepresentation that is likely to affect the value or the market price of the securities to be distributed.";
7. the initial prospectus and renewal prospectus of each Fund discloses that the Fund has received exemptive relief in the Jurisdictions to permit the Fund, subject to certain terms and conditions, to incorporate certain financial statements and information by reference into such renewal prospectus instead of including such financial statements and information in such renewal prospectus; and
8. this decision expires upon the coming into force of a prospectus rule that replaces Ontario Securities Commission Rule 41-501 - General Prospectus Requirements (Rule 41-501) or Ontario Securities Commission Rule 41-502 - Prospectus Requirements for Mutual Funds (Rule 41-502) or that varies Rule 41-501 or Rule 41-502 in a manner such that the Prospectus Financial Disclosure Requirements no longer apply.