Nelson Capital Group Ltd. and Nelson Capital Group of Funds - s. 113
Headnote
Clause 213(3)(b) of the Loan and Trust Corporations Act -- application by manager for approval to act as trustee of pooled funds and future pooled funds to be established and managed by the applicant and offered pursuant to a prospectus exemption.
Applicable Legislative Provisions
Loan and Trust Corporations Act (Ontario), section 213(3)(b).
August 6, 2008
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990 c. S.5 AS AMENDED
AND
IN THE MATTER OF
NELSON CAPITAL GROUP LTD.
AND
IN THE MATTER OF
NELSON CAPITAL GROUP OF FUNDS
ORDER
(Section 113)
WHEREAS the Ontario Securities Commission (the Commission) has received an application filed by Nelson Capital Group Ltd. (the Applicant), on its own behalf and on behalf of the Nelson Group of Funds (collectively, the Funds and, individually, a Fund) for an order pursuant to Sections 113 of the Securities Act (Ontario) (the Act) which will, subject to certain conditions, exempt the Funds from the restriction in section 111(2)(c) and section 111(3) of the Act prohibiting a mutual fund from knowingly making and holding an investment in an issuer in which (a) any officer or director of the mutual fund, its management company, or distribution company or any associate of them has a significant interest, or (b) any person or company who is a substantial security holder of the mutual fund, its management company, or distribution company has a significant interest (the Significant Interest Restriction);
AND WHEREAS the Commission has considered the application and the recommendation of staff of the Commission;
AND WHEREAS the Applicant having represented to the Commission as follows:
1. The purpose of the Funds is to allow investors to have exposure to promissory notes (Notes) issued by Nelson Financial Group Ltd. (Nelson Financial) in their registered plans such as registered retirement savings plans and registered retirement income funds. The stated investment objective of the Funds is that they will invest exclusively in Notes.
2. The Applicant is the manager of the Funds and, subject to approval by the Commission, will be the trustee of the Funds.
3. An investment in a Fund will essentially mirror a direct investment in Notes, from acquisition to redemption.
4. Notes will be issued by Nelson Financial in series with a specified rate of return and term. At any given time, there will be only one type of Note being distributed (i.e. rate of return and maturity) by Nelson Financial. Nelson Financial will determine its financing needs and decide what rate of return and term to maturity is necessary in order to raise the required amount of money through the distribution of Notes.
5. Each Fund will be established to invest in a distinct series of Notes. For example, once Nelson Financial determines that its financing needs, it will offer a corresponding value of Notes to investors who include the corresponding Fund. Individual investors can choose to invest in Notes either directly, or indirectly through the Fund.
6. A Fund will use the proceeds from the sale of its units to purchase a corresponding amount of Notes. Each Fund will only invest in one series of Notes since only one series of Notes will be in distribution at any given time.
7. Once Nelson Financial raises the required proceeds, the distribution of that series of Notes will end and the sale of units of the corresponding Fund will also end. At maturity of the Notes, the principal and any remaining accrued interest on the Notes will be paid to the Fund in accordance with the amount invested by the Fund. The Fund will in turn redeem the units of the Fund for cash and the Fund will be wound up.
8. Subsequently, when Nelson Financial needs to raise new capital, it will repeat the process i.e., a new series of Notes will be issued and a new Fund established.
9. Notes and Fund units will be sold in the exempt market through Nelson Investment Group Ltd. ("Nelson Investment") a registered limited market dealer.
10. There will be no exercise of discretion by the Applicant in managing the Funds as the money invested will be used to purchase a corresponding amount of Notes from Nelson Financial, of which only one type will be purchased by a given Fund. The term to maturity of the Fund units and the Notes will correspond. There is no element of discretion, and the returns (and any risk) for investors in any given fund will be the same.
11. Cash may be held by a Fund pending investment or redemption. Redemptions of Fund units will involve redeeming Notes, receiving cash and paying the cash proceeds to redeeming investors.
12. The Applicant will retain a trust company incorporated and licensed or registered under the laws of Canada or a jurisdiction or a bank listed in Schedule I, II or III of the Bank Act (Canada) or an affiliate of such bank or trust company to act as custodian of Notes and cash held by a Fund.
13. There is one shareholder and director of the Applicant (the Director).
14. The Director has a significant interest (as defined in subsection 110(2) of the Act) in Nelson Financial.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS HEREBY ORDERED pursuant to Section 113 of the Act that the Significant Interest Restriction shall not apply to the investments made by the Funds in Notes, provided that:
(a) the term sheet for each of the Funds discloses that the investment objective is to invest in Notes and that the Applicant and Nelson Financial are related companies; and
(b) securities of the Funds are offered for sale on a "private placement" basis only to purchasers who are eligible to purchase securities on an exempt basis under and subject to compliance with applicable securities law.