Application pursuant to section 6.1 of OSC Rule 13-502 Fees -- Exemption based on specific facts, from requirement to pay late fees in connection with late filing of interim financial statements by certain mutual funds -- Not a precedent
National Instrument 81-106 Investment Fund Continuous Disclosure, s. 2.4.
Ontario Securities Commission Rule 13-502 Fees, s. 4.3(1), Appendix D -- Item A(a).
March 2, 2015
Attention: Julie Anderson
Re: Smart Investments Ltd., and the Smart Fund Family -- Application under s. 6.1 of OSC Rule 13-502-Fees (Rule 13-502)
Application No. 2015/0018
By letter dated January 14, 2015 (the Application), you applied on behalf of Smart Investments Ltd. (Smart Investments or the Applicant), the investment fund manager of the Funds comprising the Smart Fund Family (as defined in the Application), for an exemption, pursuant to subsection 6.1 of Rule 13-502 (the Fee Exemption), from the requirement of the Funds to pay late fees of $5,000 each in connection with late filings of the Funds' interim financial statements due August 29, 2014 as per Appendix D of Rule 13-502 (the Late Fee).
From our review of the Application and other information communicated to staff, we understand the relevant facts and representations to be as follows:
1. The Applicant is a corporation incorporated under the Business Corporations Act (Ontario) with its head office located in Mississauga, Ontario. The Applicant is the investment fund manager and trustee of the Funds.
2. The Funds are mutual fund trusts established under the laws of the Province of Ontario. The Funds are currently in default for non-payment of the Late Fee and have been noted in default for this reason on the OSC's Reporting issuer List.
Annual Financial Statements
3. In a decision dated July 16, 2014 referenced as In the Matter of Kingship Capital Corporation, 2389401 Ontario Inc., Kenneth White, David Hopps, Stuart McKinnon and Pro-Financial Asset Management Inc. (the Commission Decision), the Commission exempted the Funds from the requirement in section 4.3(1) of Rule 13-502 to pay late fees in respect of the Funds' late filing of their annual audited financial statements for the year ended December 31, 2013 (the 2013 Annual Financial Statements). Due to this late filing, the Funds had incurred late fees totalling $43,200. The 2013 Annual Financial Statements were due on March 30, 2014 and were filed with the Commission on June 6, 2014.
4. At the time of the Commission Decision, the Funds' then investment fund manager, Pro-Financial Asset Management Inc. (Pro-Financial), was involved in a dispute with a former service provider to the Funds that maintained the Funds' accounting records. Among other facts, the Commission heard that the circumstances of that dispute faced by Pro-Financial at the time contributed to the delay in the filing of the 2013 Annual Financial Statements.
Interim Financial Statements
5. Under section 2.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), Pro-Financial, on behalf of the Funds, was required to file the Funds' the interim financial statements, for the period ending June 30, 2014 (the Interim Financial Statements), within 60 days of June 30, 2014, which was August 29, 2014. The Interim Financial Statements were filed on January 9, 2015 by the Applicant.
6. At the time the Interim Financial Statements were due, the Funds' investment fund manager was Pro-Financial. The Applicant acquired the management contracts of the Funds on December 12, 2014, while requiring Pro-Financial to complete the work necessary to file the Interim Financial Statements.
7. The Applicant submits that the reason for the filing delay in the Interim Financial Statements is the same reason attributed to the delay in the filing of the 2013 Annual Financial Statements. Pro-Financial did not file the Interim Financial Statements on behalf of the Funds within the time frame required by NI 81-106 due to the ongoing dispute between Pro-Financial and a former service provider that maintained the fund accounting records of the Funds. Subsequent to filing the 2013 Annual Financial Statements, the continuation of this dispute inhibited Pro-Financial's ability to timely file the Interim Financial Statements by the required deadline.
8. On or about August 8, 2014, Pro-Financial formally terminated its engagement with the former service provider who maintained fund accounting records of the Funds.
9. Pursuant to Appendix D of Rule 13-502, the Funds are required to pay the Late Fee in respect of the late filing of the Interim Financial Statements. Appendix D of Rule 13-502 imposes the late fee at a rate of $100 per business day and caps such late fee at a maximum of $5,000 per issuer.
10. As the Interim Financial Statements were filed 90 business days after the required deadline of August 29, 2014, the maximum late fee applicable to each Fund, pursuant to Appendix D of Rule 13-502, is $5,000.
11. As the Funds' new investment fund manager, the Applicant is now responsible for all future filings by the Funds. The Applicant submits that it has put measures in place to prevent future delays in the filing of the Funds' continuous disclosure documents, in particular, the Funds' financial statements and Management Reports of Fund Performance.
12. The Applicant submits that the legacy issues which inhibited the ability of Pro-Financial to timely file the Funds' financial statements are not applicable to the Applicant in its capacity as the Funds' new investment fund manager. The Applicant confirms that the dispute between Pro-Financial and the former service provider responsible for maintaining the fund accounting records of the Funds will not impact the ability of the Applicant going forward, to perform the fund accounting and administrative functions required by the Funds in house.
13. To perform the fund accounting and administrative functions required by the Funds, the Applicant has licensed fund accounting software and hired additional staff. The Funds' current registrar will continue to act as registrar of the Funds and will ensure that data required to audit and review the Funds' financial statements is readily available to the Applicant and the Funds' auditor. In addition, the Applicant is currently working closely with a compliance consultant to ensure that all compliance matters related to the Funds are addressed.
14. The Applicant confirms that it expects to file the Funds' annual financial statements for the year ended December 31, 2014, prior to, and not later than, the required deadline of March 31, 2015.
This letter confirms that, based on the information provided in the Application, the facts and representations above, and for the purposes described in the Application, the Director is satisfied that it would not be prejudicial to the public interest to grant the Fee Exemption.
The decision of the Director, pursuant to section 6.1 of the Fee Rule, is that each Fund is exempted from paying the $5,000 Late Fee, totaling $45,000 in Late Fees for all of the Funds, incurred in connection with the late filing of the Funds' Interim Financial Statements.
DATED at Toronto on this 2nd day of March, 2015.