National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to facilitate the offering of exchange-traded series and conventional mutual fund series within same fund structure -- relief granted to exchange-traded series of conventional mutual funds for continuous distribution of securities -- relief to permit funds' prospectus to not include an underwriter's certificate -- relief from take-over bid requirements for normal course purchases of securities on the TSX -- relief granted from the requirement to prepare and file a long form prospectus for exchange-traded series provided that a simplified prospectus is prepared and filed -- exchange-traded series and mutual fund series referable to same portfolio and have substantially identical disclosure -- relief permitting all series of funds to be disclosed in same prospectus -- disclosure otherwise required in long form prospectus for exchange-traded series and not contemplated by simplified prospectus form will be disclosed in prospectus under relevant headings -- National Instrument 41-101 General Prospectus Requirements, National Instrument 62-104 Take-Over Bids and Issuer Bids, Securities Act (Ontario).
Applicable Legislative Provisions
Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 59(1) and 147.
National Instrument 41-101 General Prospectus Requirements, ss. 3.1(2) and 19.1.
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.
December 6, 2019
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CALDWELL INVESTMENT MANAGEMENT LTD. (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Caldwell U.S. Dividend Advantage Fund (the Existing Fund) and such other mutual funds as are or may be managed by the Filer in the future that offer both ETF Securities (as defined below) and Mutual Fund Securities (as defined below) (the Future Funds, and together with the Existing Fund, the Funds), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:
(a) exempts the Filer and each Fund from the requirement in National Instrument 41-101 General Prospectus Requirements to prepare and file a long form prospectus in the form prescribed by Form 41-101F2 Information Required in an Investment Fund Prospectus (Form 41-101F2) (the ETF Prospectus Form Requirement) for the ETF Securities, provided that the Fund files a simplified prospectus (SP) in the form prescribed by Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) and annual information form (AIF) in the form prescribed by Form 81-101F2 Contents of Annual Information Form (Form 81-101F2) in accordance with the provisions of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the ETF Securities (the Prospectus Form Relief);
(b) exempts the Filer and each Fund from the requirement to include a certificate of an underwriter in a Fund's prospectus (the Underwriter's Certificate Requirement) in respect of each class or series of ETF Securities (the Underwriter's Certificate Relief); and
(c) exempts a person or company purchasing ETF Securities in the normal course through the facilities of the TSX (as defined below) or another Marketplace (as defined below) from the Take-Over Bid Requirements (as defined below) (the Take-Over Bid Relief, and together with the Prospectus Form Relief and Underwriter Certificate Relief, 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 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 all of the provinces and territories of Canada other than Ontario (together with Ontario, the Canadian Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. In addition, terms defined in National Instrument 81-102 Investment Funds (NI 81-102) have the same meaning if used in this decision, unless otherwise defined.
Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the re-sale of Creation Units (as defined below) from time to time.
Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of a Fund authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more Funds on a continuous basis from time to time.
Basket of Securities means, in relation to the ETF Securities of a Fund, a group of securities or assets representing the constituents of the Fund.
Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer, or an affiliate of the Filer, on behalf of a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund's ETF Securities on the TSX or another Marketplace.
ETF Securities means securities of an exchange-traded class or series of a Fund that are listed or will be listed on the TSX or another Marketplace and that will be distributed pursuant to an SP prepared in accordance with NI 81-101 and Form 81-101F1.
Marketplace means a "marketplace", as defined in National Instrument 21-101 Marketplace Operation, that is located in Canada.
Mutual Fund Securities means securities of a non-exchange-traded class or series of a Fund that are or will be distributed pursuant to an SP prepared in accordance with NI 81-101 and Form 81-101F1.
Other Dealer means a registered dealer that is not an Authorized Dealer, Designated Broker or Affiliate Dealer.
Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.
Prospectus Delivery Requirement means the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement of the Legislation applies, send or deliver to the purchaser or its agent, unless the dealer has previously done so, the latest prospectus and any amendment either before entering into an agreement of purchase and sale resulting from the order or subscription, or not later than midnight on the second business day after entering into that agreement.
Securityholders means beneficial or registered holders of ETF Securities or Mutual Fund Securities of a Fund, as applicable.
Take-Over Bid Requirements means the requirements of National Instrument 62-104 Take-Over Bids and Issuer Bids relating to take-over bids, including the requirement to file a report of a take-over bid and to pay the accompanying fee in each Canadian Jurisdiction.
TSX means the Toronto Stock Exchange.
This decision is based on the following facts represented by the Filer:
The Filer and the Funds
1. The Filer is a corporation incorporated under the laws of the Province of Ontario.
2. The head office of the Filer is located at 150 King Street West, Suite 1702, P.O. Box 47, Toronto, Ontario, M5H 1J9.
3. The Filer is a registered portfolio manager and investment fund manager in Ontario.
4. The Filer is, or will be, the manager of the Funds. The Filer is, or will be, the trustee of the Funds that are established as trusts.
5. The Filer is not in default of securities legislation in any of the Canadian Jurisdictions.
6. The Existing Fund is a mutual fund established under the laws of the Jurisdiction as a trust. Each Future Fund will be a mutual fund established under the laws of a Canadian Jurisdiction as either a trust or a corporation or a class thereof. Each Fund is, or will be, a reporting issuer in the Canadian Jurisdictions in which its securities are distributed.
7. Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each Fund is, or will be, subject to NI 81-102 and Securityholders will have the right to vote at a meeting of Securityholders in respect of matters prescribed by NI 81-102.
8. The Existing Fund currently offers three series of Mutual Fund Securities, specifically Series A, Series D and Series F, under an SP, AIF and fund facts documents (Fund Facts), all dated July 19, 2019.
9. In December 2019, an amended and restated SP and amended and restated AIF for the Existing Fund, as well as ETF facts documents (ETF Facts) for each class or series of ETF Securities of the Existing Fund, will be filed with the securities regulatory authorities in each of the Canadian Jurisdictions.
10. The Filer will apply to list the ETF Securities of each of the Funds on the TSX or another Marketplace. The Filer will not file a final prospectus or an amendment to a prospectus in respect of ETF Securities of any of the Funds until the TSX or other applicable Marketplace has conditionally approved the listing of such ETF Securities.
11. The Existing Fund is not in default of securities legislation in any of the Canadian Jurisdictions.
12. Mutual Fund Securities may be subscribed for or purchased directly from a Fund through mutual fund dealers, investment dealers and their representatives that are registered under applicable securities legislation in the Canadian Jurisdictions.
13. ETF Securities will be distributed on a continuous basis in one or more of the Canadian Jurisdictions under an SP. ETF Securities may generally only be subscribed for or purchased directly from the Funds (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on the TSX or other Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the TSX or another Marketplace.
14. In addition to subscribing for and re-selling their Creation Units, Authorized Dealers, Designated Brokers and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer, Designated Broker or Affiliate Dealer.
15. Each Designated Broker or Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of ETF Securities to be issued, a Basket of Securities and/or cash in an amount sufficient so that the value of the Basket of Securities and/or cash delivered is equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order. In the discretion of the Filer, the Funds may also accept subscriptions for Creation Units in cash only, in securities other than Baskets of Securities and/or in a combination of cash and securities other than Baskets of Securities, in an amount equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order.
16. Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker may be contractually required to subscribe for Creation Units of a Fund for cash in an amount not to exceed a specified percentage of the net asset value of the Fund or such other amount established by the Filer.
17. Designated Brokers and Authorized Dealers will not receive any fees or commissions in connection with the issuance of Creation Units to them. On the issuance of Creation Units, the Filer or a Fund may, in the Filer's discretion, charge a fee to a Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.
18. Each Fund will appoint a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for its ETF Securities for the purpose of maintaining liquidity for the ETF Securities.
19. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, and other distributions that are exempt from the Prospectus Delivery Requirement under the Legislation, ETF Securities generally will not be able to be purchased directly from a Fund. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the TSX or another Marketplace. ETF Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.
20. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the TSX or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or multiple thereof may exchange such ETF Securities for Baskets of Securities and/or cash in the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the closing price of the ETF Securities on the TSX or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per ETF Security.
Prospectus Form Relief
21. The Filer believes it is more efficient and expedient to include all of the series of Mutual Fund Securities and ETF Securities of each Fund in one prospectus form instead of two different prospectus forms. The Filer believes that this presentation will assist in providing full, true and plain disclosure of all material facts relating to the different investment options available to investors seeking exposure to the investment strategy of a particular Fund in one, comprehensive disclosure document.
22. An ETF Facts, rather than a Fund Facts, will still be filed in respect of each class or series of ETF Securities.
23. The Filer will ensure that any additional disclosure included in the SP and AIF relating to the ETF Securities will not interfere with an investor's ability to differentiate between the Mutual Fund Securities and the ETF Securities and their respective attributes.
24. The Funds will comply with the provisions of NI 81-101 when filing any prospectus or amendment thereto.
Underwriter's Certificate Relief
25. Authorized Dealers and Designated Brokers will not provide the same services in connection with a distribution of Creation Units as would typically be provided by an underwriter in a conventional underwriting.
26. The Filer will generally conduct its own marketing, advertising and promotion of the Funds.
27. Authorized Dealers and Designated Brokers will not be involved in the preparation of a Fund's prospectus, will not perform any review or any independent due diligence to the content of a Fund's prospectus, and will not incur any marketing costs or receive any underwriting fees or commissions from the Funds or the Filer in connection with the distribution of ETF Securities. The Authorized Dealers and Designated Brokers generally seek to profit from their ability to create and redeem ETF Securities by engaging in arbitrage trading to capture spreads between the trading prices of ETF Securities and their underlying securities and by making markets for their clients to facilitate client trading in ETF Securities.
28. In addition, neither the Filer nor the Funds will pay any fees or commissions to the Designated Brokers and Authorized Dealers. As the Designated Brokers and Authorized Dealers will not receive any remuneration in connection with distributing ETF Securities and as the Authorized Dealers will change from time to time, it is not practical to provide an underwriters' certificate in the prospectus of the Funds.
Take-Over Bid Relief
29. As equity securities that will trade on the TSX or another Marketplace, it is possible for a person or company to acquire such number of ETF Securities so as to trigger the application of the Take-Over Bid Requirements. However:
(a) it will not be possible for one or more Securityholders to exercise control or direction over a Fund as the constating documents of each Fund provide that there can be no changes made to such Fund which do not have the support of the Filer;
(b) it will be difficult for purchasers of ETF Securities to monitor compliance with the Take-Over Bid Requirements because the number of outstanding ETF Securities will always be in flux as a result of the ongoing issuance and redemption of ETF Securities by each Fund; and
(c) the way in which the ETF Securities will be priced deters anyone from either seeking to acquire control, or offering to pay a control premium for outstanding ETF Securities because pricing for each ETF Security will generally reflect the net asset value of the ETF Securities.
30. The application of the Take-Over Bid Requirements to the Funds would have an adverse impact on the liquidity of the ETF Securities because they could cause the Designated Brokers and other large Securityholders to cease trading ETF Securities once the Securityholder has reached the prescribed threshold at which the Take-Over Bid Requirements would apply. This, in turn, could serve to provide conventional mutual funds with a competitive advantage over the Funds.
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:
1. the Prospectus Form Relief is granted provided that:
(a) the Filer files an SP and AIF in respect of the ETF Securities in accordance with the requirements of NI 81-101, Form 81-101F1 and Form 81-101F2, other than the requirements pertaining to the filing of a Fund Facts;
(b) the Filer includes disclosure required pursuant to Form 41-101F2 (that is not contemplated by Form 81-101F1 or Form 81-101F2) in respect of the ETF Securities, in each Fund's SP and/or AIF, as applicable; and
(c) the Filer includes disclosure regarding this decision under the heading "Additional Information" and "Exemptions and Approvals" in each Fund's SP and AIF, respectively.
2. the Underwriter's Certificate Relief is granted; and
3. the Take-Over Bid Relief is granted.
As to the Prospectus Form Relief and Take-Over Bid Relief:
As to the Underwriter's Certificate Relief: