NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from National Instrument 81-106 Investment Fund Continuous Disclosure to permit investment funds representing two tiers of a two-tiered fund structure that use specified derivatives to calculate their NAV on a weekly basis and not on a daily basis, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, s. 14.2(3)(b).
May 29, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
MARRET ASSET MANAGEMENT INC.
IN THE MATTER OF
MARRET HIGH YIELD STRATEGIES FUND
The principal regulator in the Jurisdiction has received an application from the Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the requirement in section 14.2(3)(b) of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) that the net asset value of an investment fund must be calculated at least once every business day if the investment fund uses specified derivatives (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Fund 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 Alberta, British Columbia, Manitoba, Saskatchewan, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Manager and the Fund:
1. The Fund is an investment fund established under the laws of Ontario. The Fund will be governed by a declaration of trust.
2. The Manager is the promoter of, and has been retained to act as manager of, including as portfolio advisor for, the Fund. The Manager will be responsible for providing or arranging for the provision of administrative services required by the Fund. The head office of the Manager is located in Ontario.
3. Neither the Manager nor the Fund are in default of securities legislation in any jurisdiction.
4. The Fund filed a preliminary prospectus dated April 20, 2009 on SEDAR with respect to a public offering (the "Offering") of Class A Units (the "Units") and Class F Units (although the offering of Class F Units will not proceed), a receipt for which was issued by the Commission on April 21, 2009.
5. The Fund's investment objectives are to maximize total returns for holders of Units (the "Unitholders"), consisting of both tax-advantaged distributions and capital appreciation, while reducing risk, and to provide Unitholders with attractive monthly tax-advantaged distributions, initially targeted to be 8.00% per annum on the original issue price of $10.00 per Unit by obtaining exposure to a portfolio (the "Portfolio") consisting primarily of high yield debt securities. The Fund will obtain exposure to the Portfolio by entering into the Forward Agreement (as defined below). The Fund may also directly hold a small amount of the same securities as are held in the Portfolio.
6. Marret HYS Trust has been established for the purpose of holding the Portfolio, which will be actively managed by the Manager.
7. The Fund will seek to achieve its investment objective by entering into a forward purchase and sale agreement (the "Forward Agreement") with a Canadian financial institution or one of its affiliates (the "Counterparty"). Under the terms of the Forward Agreement, the Counterparty will agree to deliver to the Fund on May 30, 2014 (the "Termination Date"), a portfolio consisting of securities of Canadian public issuers that are "Canadian securities" as defined under subsection 39(6) of the Income Tax Act (Canada) (the "Canadian Securities Portfolio"). The aggregate value of the Canadian Securities Portfolio will be equal to the redemption proceeds of the relevant number of units of Marret HYS Trust ("Trust Units"), net of any amount owing by the Fund to the Counterparty. The Forward Agreement constitutes a specified derivative.
8. The Units are expected to be listed and posted for trading on the Toronto Stock Exchange (the "TSX"). An application requesting conditional listing approval has been made on behalf of the Fund to the TSX.
9. Units may be redeemed on the second last business day of July of any year commencing in 2011 (the "Annual Redemption Date"), if the average of the net asset value per Unit on the first four valuation dates (as defined in the preliminary prospectus of the Fund) occurring in the month of May preceding the Annual Redemption Date is less than $10.00 (the "Annual Redemption Condition"), at a redemption price per Unit equal to the net asset value per Unit, less any costs associated with the redemption, including commissions and other such costs, if any, related to the partial settlement of the Forward Agreement to fund such redemption.
10. In addition to such annual redemption right, Units may be redeemed on the second last business day of each month, other than in the month of July in a year where the Annual Redemption Condition has been met (the "Monthly Redemption Date"), subject to certain conditions, at a redemption price equal to the lesser of (i) 94% of the market price (as defined in the preliminary prospectus of the Fund) of a Unit and (ii) 100% of the closing market price (as defined in the preliminary prospectus of the Fund) of a Unit on the applicable Monthly Redemption Date less, in each case, any costs associated with the redemption, including brokerage costs.
11. The Fund will use the net proceeds of the Offering for the pre-payment of its purchase obligations under the Forward Agreement.
12. The Forward Agreement provides that the Fund may settle the Forward Agreement, in whole or in part, prior to the Termination Date: (i) to fund monthly distributions on the Units; (ii) to fund redemptions and repurchases of Fund Units from time to time; (iii) to fund operating expenses and other liabilities of the Fund; and (iv) for any other reason.
13. The Fund will calculate its net asset value on the Thursday of each week (or if any Thursday is not a business day, the immediately preceding business day) and the last business day of each month. The Manager will make the Fund's net asset value per Unit available to the financial press for publication on a weekly basis, and will post the net asset value per Unit on its website at www.marret.ca.
14. The final prospectus of the Fund will disclose that the net asset value per Unit will be calculated and made available to the financial press for publication on a weekly basis, and that the Manager will post the net asset value per Unit on its website.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
1. the Fund calculates net asset value per Unit at least once in each week; and
2. the final prospectus of the Fund discloses:
(a) that the net asset value per Unit is available to the public upon request; and
(b) a website that the public can access to obtain the net asset value calculation per Unit;
for so long as: (i) the Units are listed on the TSX, and (ii) the Fund calculates the net asset value per Unit at least once in each week.