Marret Asset Management Inc. and Marret Investment Grade Bond Fund
Headnote
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, ss. 14.2(3)(b), 17.1.
September 25, 2009
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
MARRET ASSET MANAGEMENT INC.
(the Manager)
AND
IN THE MATTER OF
MARRET INVESTMENT GRADE BOND FUND
(the Fund)
DECISION
Background
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 (NAV) 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, Newfoundland and Labrador.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Manager and the Fund:
1. The Fund is an investment trust to be established under the laws of Ontario pursuant to a declaration of trust.
2. The Fund filed a preliminary prospectus (the Preliminary Prospectus) dated September 1, 2009 on SEDAR with respect to a public offering (the Offering) of Units (the Units, and each holder of a Unit, a Unitholder), a receipt for which was issued by the Commission on September 2, 2009.
3. The Fund's investment objectives are: (i) to provide Unitholders with attractive monthly tax advantaged cash distributions, initially targeted to be 5% per annum on the original issue price of $12.00 per Unit; and (ii) to maximize total returns for Unitholders, consisting primarily of tax-advantaged distributions, while reducing risk and preserving capital. The Fund will seek to achieve its investment objectives through exposure to an actively managed portfolio (the Portfolio) consisting primarily of investment grade bonds.
4. Marret IGB Trust will be established under the laws of the Province of Ontario, pursuant to a declaration of trust, for the purpose of acquiring and holding the Portfolio.
5. The Fund will seek to achieve its investment objectives 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 a date to be determined in 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 IGB Trust, net of any amount owing by the Fund to the Counterparty. The Forward Agreement constitutes a specified derivative.
6. The Manager is the manager and the promoter of the Fund and Marret IGB Trust. The Manager will be responsible for providing or arranging for the provision of administrative services required by both the Fund and Marret IGB Trust. The Manager will be responsible for acquiring the securities comprising the Portfolio and maintaining the Portfolio in accordance with the investment objectives of the Marret IGB Trust. The head office of the Manager is located in Ontario.
7. Neither the Manager nor the Fund are in default of securities legislation in any jurisdiction.
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 will be made on behalf of the Fund to the TSX.
9. Units may be redeemed on the last business day of November of any year commencing in 2010 (but must be surrendered by the Unitholder at least ten business days prior to such redemption date), at a redemption price per Unit equal to the NAV 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 November (the Monthly Redemption Date) (but must be surrendered by the Unitholder on the last business day of the month preceding the redemption month in order to be redeemed), 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 a Unit and (ii) 100% of the closing market price (as defined in the Preliminary Prospectus) 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 distributions on the Units; (ii) to fund redemptions and repurchases of Units from time to time; (iii) to fund operating expenses and other liabilities of the Fund; and (iv) for any other reason.
13. The units of Marret IGB Trust will be redeemable at the demand of unitholders of Marret IGB Trust. The units of Marret IGB Trust will be redeemed at a price computed by reference to the NAV per unit of Marret IGB Trust.
14. The Fund will calculate its NAV per Unit 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, and on any other date on which the manager elects, in its discretion, to calculate the NAV per Unit. The Manager will make the Fund's NAV per Unit available to the financial press for publication on a weekly basis, and will post the NAV per Unit on its website.
15. The final prospectus of the Fund will disclose that the NAV 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 NAV per Unit on its website at www.marret.ca.
Decision
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:
(a) the Units are listed on the TSX; and
(b) the Fund calculates the NAV per Unit at least weekly.