NexGen Financial Limited Partnership and Sterling Mutuals Inc.
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement in s.3.2(2), NI 81-101 to deliver a fund facts document to investors for subsequent purchases of mutual fund securities made pursuant to pre-authorized investment plans, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 3.2(2), 6.1.
December 16, 2014
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 NEXGEN FINANCIAL LIMITED PARTNERSHIP (THE FILER) AND IN THE MATTER OF STERLING MUTUALS INC. (THE REPRESENTATIVE DEALER)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the mutual funds that are or will be managed from time to time by the Filer or by an affiliate or successor of such Filer (the Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the requirement in the Legislation to send or deliver the most recently filed fund facts documents (the Fund Facts) at the same time and in the same manner as otherwise required for the prospectus (the Fund Facts Delivery Requirement), not apply in respect of purchases of securities of the Funds pursuant to a pre-authorized investment plan, including employee purchase plans, capital accumulation plans, or any other contracts or arrangements for the purchase of a specified amount on a dollar or percentage basis of securities of the Funds on a regularly scheduled basis (each an Investment Plan) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) 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 British Columbia, Alberta, Ontario, Quebec, Newfoundland and Labrador and Northwest Territories (the Jurisdictions).
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 Filer:
1. The head office of the Filer is located in Ontario.
2. The Funds are, or will be, reporting issuers in one or more of the Jurisdictions. Securities of the Funds are, or will be, qualified for sale on a continuous basis pursuant to a simplified prospectus.
3. Neither the Filer nor any of its Funds is in default of any of the requirements of securities legislation in any Jurisdiction.
4. Securities of each Fund are, or will be, distributed through dealers which are not affiliated with the Filer (individually, each dealer that distributes securities of a Fund managed by a Filer is a Dealer and collectively, the Dealers).
5. Each Dealer is, or will be, registered as a dealer in one or more of the Jurisdictions.
6. Securities of the existing Funds may be purchased through the Representative Dealer.
7. Each of the investors may be offered the opportunity to invest in a Fund on a regular or periodic basis pursuant to an Investment Plan.
8. Under the terms of an Investment Plan, an investor instructs a Dealer to accept additional contributions on a pre-determined frequency and/or periodic basis and to apply such contributions on each scheduled investment date to additional investments in specified Funds. The investor authorizes a Dealer to debit a specified account or otherwise makes funds available in the amount of the additional contributions. An investor may terminate the instructions, or give amended instructions, at any time.
9. An investor who established an Investment Plan (a Participant) received a copy of the latest simplified prospectus relating to the relevant securities of the Fund at the time the Investment Plan was established.
10. An agreement of purchase and sale of mutual fund securities is not binding on the purchaser if a Dealer receives notice of the intention of the purchaser not to be bound by the agreement of purchase and sale within a specified time period.
11. The terms of an Investment Plan are such that a Participant can terminate the instructions to the Dealer at any time. Therefore, there is no agreement of purchase and sale until a scheduled investment date arrives and the instructions have not been terminated. At this point, the securities are purchased.
12. With the implementation of the amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) and consequential amendments as described in Stage 2 of Point of Sale Disclosure for Mutual Funds -- Delivery of Fund Facts (Stage 2 POS), Dealers must deliver the Fund Facts in lieu of delivering the simplified prospectus to all investors, including the Participants, pursuant to the Fund Facts Delivery Requirement, effective June 13, 2014.
13. Prior to June 13, 2014, a Dealer not acting as an agent for the applicable investor was obligated to send or deliver to all Participants who purchase securities of the Funds pursuant to an Investment Plan, the latest simplified prospectus of the applicable Funds at the time the investor entered into the Investment Plan and thereafter, any subsequent simplified prospectus or amendment thereto (a Renewal Prospectus).
14. Pursuant to the Fund Facts Delivery Requirement, a Dealer not acting as agent of the purchaser, who receives an order or subscription for a security of a Fund offered in a distribution to which the Legislation applies, must, unless it has previously done so, send to the purchaser the Fund Facts most recently filed either before entering into an agreement of purchase and sale resulting from the order or subscription or not later than midnight of the second day, exclusive of Saturdays, Sundays and holidays, after entering into such agreement.
15. The Filer had obtained an exemption (PAC Relief) (pursuant to a decision document dated March 14, 2007) from the requirement to deliver the Renewal Prospectus of the Funds to Participants in an Investment Plan unless the Participant asks to receive them.
16. Due to the wording in the PAC Relief, it may not be possible or appropriate to "read in" Fund Facts in place of references to the simplified prospectus in the PAC Relief. Therefore, the Exemption Sought is required in order to provide certainty as to the disclosure document that must be delivered to Participants.
17. As the PAC Relief is unable to be used on or after June 13, 2014, since this date, the Fund Facts Delivery Requirement obligated each Dealer to deliver the Fund Facts to any new or existing Participant in an Investment Plan.
18. There are approximately 300 Participants who purchased securities of the Funds under an Investment Plan since June 13, 2014.
19. During the 4 month period between June 13, 2014 and October 30, 2014, the most current Fund Facts of each Fund was dated May 28, 2014 (May Fund Facts). On October 31, 2014, the Filer amended the prospectus in respect of each Fund, including the Fund Facts, to disclose a proposed change of control of the Filer. As a result, the most current Fund Facts during the period between November 17, 2014 (being the date of the receipt for the amendment) and the date of this Decision are the Fund Facts dated October 31, 2014 (October Fund Facts).
20. It is likely that any investor who became a Participant between June 13, 2014 and the date of this Decision (a New Participant) would have received a copy of the most current Fund Facts (being either the May Fund Facts or the October Fund Facts) from the investor's Dealer at the time of initial investment, in compliance with the Dealer's obligation under the Fund Facts Delivery Requirement.
21. To the extent that a New Participant made a subsequent purchase of securities of a Fund under the Investment Plan following November 17, 2014, it is likely that such investor would not have received the October Fund Facts from their Dealer, and so would no longer have the most current Fund Facts document.
22. It is likely that any investor who was a Participant in an Investment Plan established prior to June 13, 2014 (a Current Participant) did not receive either the May Fund Facts or the October Fund Facts from their Dealer and so would not have been sent or delivered the most current Fund Facts for any investment in a Fund made following June 13, 2014.
23. On November 19, 2014, investors in the Funds were mailed notice of the proposed change of control of the Filer (the Notice), as required pursuant to National Instrument 81-102 Investment Funds.
24. Although certain Participants may not have received the October Fund Facts, the Notice informs such investors about the proposed material change that triggered the Filer's obligation to amend its Fund Facts and therefore each Participant is not prejudiced by the failure to be sent or delivered the October Fund Facts.
25. To ensure that all Participants have received the most current Fund Facts, the Filer will send or deliver the October Fund Facts to all investors who are Participants as of the date of this Decision, together with a notice advising the Participant of the information described in condition 1 below.
26. The proposed amendments to NI 81-101 and consequential amendments as described in Stage 3 of the Point of Sale Disclosure for Mutual Funds -- Point of Sale Delivery of Fund Facts, and published for comment on March 26, 2014, contemplate an exception from the Fund Facts Delivery Requirement for Investment Plans (Proposed Exception).
27. Until the Canadian Securities Administrators publish final amendments to implement the Proposed Exception, the Filer would like the Investment Plans to continue to operate in the same manner and using the same process as the existing regime under the PAC Relief with the exception of the delivery of a Fund Facts to a Participant instead of a simplified prospectus.
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:
1. A one-time notice is sent or delivered to current Participants, no later than the next scheduled annual reminder notice required by the Filer's current PAC Relief, in lieu of receiving a Fund Facts for any purchase of securities under the Investment Plan, advising the current Participants:
(a) that they will not receive the Fund Facts document when they purchase securities of the applicable Fund under the Investment Plan unless
(i) the Participant requests the Fund Facts; or
(ii) the Participant has previously instructed that they want to receive the simplified prospectus, in which case, the Fund Facts will now be sent or delivered in lieu of the simplified prospectus;
(b) that they may request the most recently filed Fund Facts by calling a specified toll-free number or by sending a request via mail or e-mail to a specified address or email address;
(c) that the most recently filed Fund Facts will be sent or delivered to any Participant that requests it at no cost to the Participant;
(d) that the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer's website;
(e) that they will not have the right to withdraw from an agreement of purchase and sale (a Withdrawal Right) in respect of a purchase of securities of any Funds made pursuant to an Investment Plan, but they will have the right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into any Renewal Prospectus contains a misrepresentation (a Misrepresentation Right), whether or not they request the Fund Facts; and
(f) that they will continue to have the right to terminate the Investment Plan at any time before a scheduled investment date.
2. Investors who become Participants and invest in any Funds on or after the date of this Decision will be sent or delivered the most recently filed Fund Facts document and a one-time notice advising the Participants:
(a) that they will not receive the Fund Facts when they subsequently purchase securities of the applicable Fund under the Investment Plan unless they request the Fund Facts at the time they initially invest in an Investment Plan or subsequently request the Fund Facts by calling a specified toll-free number or by sending a request via mail or email to a specified address or email address;
(b) that the most recently filed Fund Facts will be sent or delivered to any Participant that requests it at no cost to the Participant;
(c) that the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer's website;
(d) that they will not have a Withdrawal Right in respect of a purchase made pursuant to an Investment Plan, other than in respect of the initial purchase and sale, but they will have a Misrepresentation Right, whether or not they request the Fund Facts; and
(e) that they have the right to terminate an Investment Plan at any time before a scheduled investment date.
3. Following either 1 or 2 above, Participants will be advised annually in writing as to how they can request a current Fund Facts document and that they have a Misrepresentation Right.
The decision, as it relates to a Jurisdiction, will terminate on the effective date following any applicable transition period for any legislation or rule dealing with the Proposed Exception.