Relief granted to mutual fund to cease to be a reporting issuer under securities legislation -- Mutual fund not eligible to rely on simplified process set out in CSA Staff Notice 12-307 because beneficially owned by more than 50 persons -- Mutual fund became a reporting issuer in order to allow another prospectus qualified fund to purchase units of the mutual fund -- That prospectus qualified fund no longer holds units of the mutual fund -- The remaining unitholders are all accredited investors -- Units of the mutual fund are only distributed on exempt basis pursuant to available regulatory exemptions from prospectus requirements -- Fund is not being distributed to the retail public.
Securities Act (Ontario), s. 1(10)(a)(ii).
February 13, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO AND IN THE MATTER OF UBS GLOBAL ASSET MANAGEMENT (CANADA) INC. (the Applicant) AS MANAGER OF THE UBS (CANADA) HIGH YIELD DEBT FUND (the Fund and together with the Applicant, the Filers)
The Ontario Securities Commission (Decision Maker) has received an application from the Filers for a decision under the securities legislation of Ontario (the Legislation) that the Fund no longer be a reporting issuer under the Legislation (the Exemptive Relief Sought).
Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. The Applicant is a corporation existing under the laws of the Province of Nova Scotia with its head office located in Toronto, Ontario.
2. The Applicant is registered with the Commission under the Securities Act (Ontario) (the OSA) as a dealer in the category of exempt market dealer, as an adviser in the category of portfolio manager and as an investment fund manager and, under the Commodity Futures Act (Ontario), as an adviser in the category of commodity trading manager. The Applicant is also registered as a dealer in the category of exempt market dealer and as an adviser in the category of portfolio manager in all other provinces and territories of Canada, as an investment fund manager in Québec and Newfoundland and Labrador, and as an adviser under the Commodity Futures Act in Manitoba.
3. The Applicant is currently the portfolio manager and investment fund manager of the Fund.
4. The Applicant and the Fund are not in default of securities, commodity futures or derivatives legislation in any jurisdiction in Canada.
5. The Fund is established as an Ontario domiciled trust.
6. The Fund is a reporting issuer in Ontario and is not in default of any of its obligations thereunder.
7. The details of the simplified prospectus for the Fund are as follows:
UBS (Canada) High Yield Debt Fund, Series A, B, D and F Units -- Simplified Prospectus dated as of May 1, 2014;
8. The Fund is authorized to issue one class of units (Units) and within each class an unlimited number of series of Units (each a Series) and an unlimited number of Units of each Series. The Fund has four Series of Units that are qualified by the simplified prospectus.
9. As of the date of this Application, all the unitholders in the Fund are accredited investors that do not rely on the simplified prospectus to purchase the Units. The Applicant does not intend to sell any more Units under the simplified prospectus and does not intend to renew the simplified prospectus following its lapse date.
10. The Fund became qualified to distribute its Units by way of a simplified prospectus to allow UBS (Canada) Global Allocation Fund, a prospectus qualified fund, to purchase Units of the Fund. As of the date of this Application, the UBS (Canada) Global Allocation Fund no longer holds any Units of the Fund.
11. The remaining unitholders in the Fund are clients of an affiliate of the Applicant (UBS Investment Management Canada Inc. hereinafter, the "Affiliate") who is also a registrant. The Affiliate offers investment management and financial counselling services, primarily to high net worth individuals (each, a "Client") through a managed account ("Managed Account"). Each Client who wishes to receive the investment management services of the Affiliate executes a written agreement whereby the Client appoints the Affiliate to manage the investment portfolio of the Client with discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the Client on the underlying securities that will be held in the Managed Account. At no time have these underlying Clients of the Affiliate been provided with the simplified prospectus or advised that there was a simplified prospectus. The Fund is only distributed to Managed Account Clients of the Affiliate and therefore not widely distributed.
12. The Fund does not charge a commission or a management fee directly to investors of the Affiliate. The Applicant and the Affiliate have entered into a bulk subscription agreement whereby the affiliate pays the Applicant a fee based on the assets under management. With respect to the relationship between the Client and the Affiliate, under its agreement, the Client agrees to pay the Affiliate a management fee. The terms of the fees are detailed in each Client's agreement. However, there are no redemption fees applicable to the Fund.
13. Investors in the Fund are only comprised of and will in the future only be comprised of investors who qualify as "accredited investors" as defined in NI 45-106. In the bulk subscription agreement with the Affiliate, the Affiliate represents to the Applicant that all investors that the Affiliate puts into the Fund are accredited investors falling within either the income test or the asset test as set forth in NI 45-106 Part 1 definition of Accredited Investor paragraphs (j), (k) and (l). This is confirmed annually by the Affiliate to the Applicant in a certificate addressed to the Applicant.
14. The Fund has more than 15 unitholders in Ontario. In addition, the Fund has more than 51 unitholders in total worldwide.
15. The only reason that the Fund is not eligible for relief pursuant to OSC Staff Notice 12-703 Applications for a Decision that an Issuer is not a Reporting Issuer is because of the number of unitholders in the Fund.
16. The Affiliate has confirmed that they send each Client a monthly statement showing current holdings and a summary of all transactions carried out in their managed account during the month as well as a comprehensive quarterly portfolio reporting package that includes current holdings, capital allocation, asset mix and performance. The Applicant will send a notice to the Affiliate to distribute to all unitholders of the Fund in their next comprehensive quarterly portfolio reporting package advising that the Fund has ceased to be a reporting issuer and explaining the implications of such fact. As there are no redemption charges payable by unitholders in the Fund, these Clients will be permitted to instruct the Affiliate if they no longer wish to be invested in the Fund and there will be no fees associated with such redemption.
17. Ceasing to be a reporting issuer will reduce the regulatory and financial burdens associated therewith, such as the costs of preparing Management Reports of Fund Performance and maintaining an Independent Review Committee. As the management expense ratio of the Fund will be reduced, this will be a benefit to the unitholders to the extent the costs and expenses associated with these requirements will no longer be applicable.
18. The Fund will continue as a pooled fund subject to NI 81-106 (being a mutual fund in Ontario) and the regulatory obligations therein, and will continue to be subject to the self-dealing and conflict of interest requirements in Part XXI of the OSA.
The Decision Maker 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 Maker under the Legislation is that the Exemptive Relief Sought is granted.