NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted to permit National Bank Securities Inc. and any other registered dealer that trades in securities of the mutual funds managed from time to time by National Bank Securities Inc., to satisfy the requirement under securities legislation to send or deliver a simplified prospectus of a mutual fund by delivering a tailored simplified prospectus on or before the effective date of a Proposed Change to a client's Strategic Portfolio, which is a model portfolio of funds selected by the client as part of an optional asset allocation service offered by the Filer. -- the exemption is required because the tailored simplified prospectus does not comply with the Form Requirement.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2(2), 6.1.
May 31, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUEBEC AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
NATIONAL BANK SECURITIES INC.
The securities regulatory authority or regulator of each of the Jurisdictions (the Decision Makers) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting the Filer and any other registered dealer (collectively with the Filer, the Dealers) that trades in securities of the mutual funds managed from time to time by the Filer from the requirement in subsection 3.2(2) of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) to deliver or send a simplified prospectus of a mutual fund filed under NI 81-101 and prepared in accordance with Form 81-101F1 to permit delivery of a Tailored Simplified Prospectus (as defined below) each time that the Filer, as manager of the Funds, proposes to make a change to its asset allocation service (the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers is the principal regulator for this application (the Principal Regulator),
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon Territories, and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions have the same meanings if used in this decision. Certain other defined terms have the meanings given to them above or below.
Affected Clients means those Clients (as defined below) who are affected by a Proposed Change (as defined below) to the Strategic Portfolio Service that affects the Funds held in the Client's Strategic Portfolio (as defined below);
Form 81-101F1 means Form 81-101F1 Contents of Simplified Prospectus of NI 81-101;
Funds means the mutual funds currently managed by the Filer and any mutual funds that are managed by the Filer in the future; and
Latest Simplified Prospectus means the simplified prospectus of the Funds last receipted by the regulator or securities regulatory authority in the applicable province and/or territory of Canada and any amendment thereto.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation governed by the Canada Business Corporations Act, with its head office in Montreal, Quebec.
2. The Filer is registered as a mutual fund dealer in each province and territory of Canada.
3. The Filer is not in default of securities legislation in any province or territory of Canada.
4. The Filer is the manager and principal distributor of each of the Funds and may be the manager of other mutual funds in the future.
5. The Funds are either open-ended mutual fund trusts established under the laws of Ontario or mutual fund corporations governed under the laws of Canada.
6. As manager of the Funds, the Filer offers an optional asset allocation service (the Strategic Portfolio Service) by which clients (collectively, the Clients and individually, a Client) match their risk profile and investment objectives to a model portfolio of Funds (the Strategic Portfolio) and then instruct the Filer to allocate their investment into such Funds and rebalance such investments on a pre-determined periodic basis.
7. The Filer proposes to change certain of the Funds and revise the target allocation of each Fund in the Strategic Portfolios and may, in the future, make other changes to the Strategic Portfolios that require the delivery of a simplified prospectus of a Fund to a Client (each, a Proposed Change). Pursuant to the terms of the Strategic Portfolio Service, the Filer will provide at least 60 days advance written notification to the Affected Clients describing the Proposed Change. The notice will specify that if an Affected Client does not provide his or her objection to the Proposed Change, then the Filer will take this non-objection as consent to make the Proposed Change to the Affected Client's Strategic Portfolio on the effective date.
8. The Dealers who sell securities of the Funds using the Strategic Portfolio Service are, pursuant to securities legislation in each province and territory of Canada, required to send by prepaid mail or deliver to each Client the Latest Simplified Prospectus either before the rebalancing trades to effect a Proposed Change or no later than two days following the trades, if the Affected Client has not previously received a copy of the prospectus (the Prospectus Delivery Requirement).
9. Subsection 3.2(2) of NI 81-101 specifies that the requirement to deliver or send a prospectus of a mutual fund to a person or company is satisfied by delivering or sending a simplified prospectus filed under NI 81-101 and prepared in accordance with Form 81-101F1, either with or without the documents incorporated by reference (the Form Requirement).
10. As a result of the Prospectus Delivery Requirement, the Dealers must send to each Affected Client a copy of the Latest Simplified Prospectus of each new Fund that is being introduced into the Client's Strategic Portfolio as a result of a Proposed Change (collectively, the Relevant Funds and individually, the Relevant Fund), on or before the effective date of the Proposed Change.
11. The Filer believes that Affected Clients only require information about the Relevant Funds to be added to their Strategic Portfolio and do not require information about all the Funds contained in the Latest Simplified Prospectus.
12. The Latest Simplified Prospectus qualifies a large number of Funds in addition to the Relevant Funds. Most of the Funds in the Latest Simplified Prospectus are not relevant to Affected Clients in connection with a Proposed Change.
13. To fulfil the Prospectus Delivery Requirement for a Proposed Change, the Filer, on behalf of each Dealer, proposes to send or deliver a tailored simplified prospectus (the Tailored Simplified Prospectus), consisting of Part A of the Latest Simplified Prospectus and Part B(s) of the Latest Simplified Prospectus of the Relevant Fund(s), to Affected Clients in the Strategic Portfolio Service, instead of delivering the Latest Simplified Prospectus containing all the Funds to such Clients.
14. The Filer will keep records of the Dealers relying on this decision and will deliver a list of such Dealers to the Principal Regulator within 10 business days of the mailing of any Tailored Simplified Prospectus.
15. The Tailored Simplified Prospectus delivered or sent by the Filer as a result of a Proposed Change to the Funds offered under the Strategic Portfolio Service may differ in the following respects from the Form Requirement:
(a) The simplified prospectus will be tailored into a document which consists of Part A of the Latest Simplified Prospectus and Part B(s) of the Latest Simplified Prospectus of the Relevant Fund(s) (the Excerpted Document);
(b) The Tailored Simplified Prospectus will contain no colour regardless of whether there was colour in the Latest Simplified Prospectus;
(c) The pages of the Part B portion of the Tailored Simplified Prospectus will have different page numbers from the Latest Simplified Prospectus as the pagination will reflect only those pages of the Part B(s) of the Relevant Fund(s); and
(d) The Tailored Simplified Prospectus will have a table of contents that reflects only the contents of the Excerpted Document rather than the complete contents of the Latest Simplified Prospectus.
16. In the Filer's view, an Affected Client is more likely to read the material, and is more likely to make an informed decision about a Proposed Change, if he or she is furnished with the relevant information, rather than inundated with extraneous information.
17. In the Filer's view, permitting Dealers to send a Tailored Simplified Prospectus to fulfill the Prospectus Delivery Requirement would reduce the costs of delivery as it would cost more to mail the complete Latest Simplified Prospectus compared to the Tailored Simplified Prospectus.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:
(i) the simplified prospectus delivered or sent to an Affected Client in respect of a Proposed Change to the Strategic Portfolio complies with the terms of NI 81-101, other than:
(a) The simplified prospectus will be tailored into a document which consists of Part A of the Latest Simplified Prospectus and Part B(s) of the Latest Simplified Prospectus of the Relevant Fund(s);
(b) The Tailored Simplified Prospectus will contain no colour, regardless of whether there was colour in the Latest Simplified Prospectus;
(c) The pagination of the Tailored Simplified Prospectus will reflect only the pages of Part A of the Latest Simplified Prospectus and those pages of the Part B(s) of the Relevant Fund(s);
(d) The Tailored Simplified Prospectus will have a table of contents that reflects only the contents of the Excerpted Document, as set out in (a) above, rather than the complete contents of the Latest Simplified Prospectus; and
(ii) this decision shall cease to be of effect with the coming into force of any legislation or rule of the Decision Makers relating to the preparation, delivery, binding or ordering of disclosure documents of mutual funds subject to this decision.