Scotia Asset Management L.P.
Headnote
National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Relief from s. 71 requirement to deliver a renewal prospectus annually to mutual fund investors purchasing securities pursuant to a pre-authorized investment plan.
Applicable Legislative Provisions
Securities Act (Ontario), ss. 71, 147.
October 27, 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
SCOTIA ASSET MANAGEMENT L.P.
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) on behalf of the publicly offered mutual funds that are managed from time to time by the Filer (the Funds) that the requirement in the Legislation to deliver the latest prospectus and any amendment to the prospectus together with the right not to be bound by an agreement of purchase and sale (the Delivery Requirement) not apply in respect of a purchase and sale of securities of the Funds pursuant to a preauthorized investment plan, including employee purchase plans, capital accumulation plans, or any other contract or arrangement for the purchase of a specified amount of securities on a regularly scheduled basis (an Investment Plan) (the Delivery Requirement Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission (the OSC) is the principal regulator for the Application; and
(ii) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (M1 11-102) is intended to be relied upon in Alberta, British Columbia, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the Non-principal Jurisdictions).
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless otherwise defined.
Representation
The decision is based on the following facts represented by the Filer:
1. The Funds are, or will be, reporting issuers in one or more of the Jurisdiction and the Non-principal Jurisdictions. Securities of the Funds are or will be, offered for sale on a continuous basis pursuant to a simplified prospectus.
2. Securities of each of the Funds are or will be distributed through broker dealers or mutual fund dealers (Distributors) which may or may not be affiliated with the manager of the Fund.
3. Each of the Funds may offer investors the opportunity to invest in a Fund on a regular or periodic basis pursuant to an Investment Plan.
4. Under the terms of an Investment Plan, an investor instructs a Distributor 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 (which instructions may be amended from time to time). The investor authorizes a Distributor to debit a specified account or otherwise makes funds available in the amount of the additional contributions. An investor may terminate the instructions at any time.
5. An investor who establishes an Investment Plan (a Participant) receives a copy of the current simplified prospectus relating to the applicable Funds at the time an Investment Plan is established.
6. Pursuant to the Legislation, a Distributor 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 Delivery Requirement applies, must, unless it has previously done so, send by prepaid mail or deliver to the purchaser the latest prospectus and any amendment to the prospectus filed either before entering into an agreement of purchase and sale resulting from the order or subscription or not later than midnight on the second day, exclusive of Saturdays, Sundays and holidays, after entering into such agreement.
7. Pursuant to the Legislation, an agreement referred to in paragraph 6 is not binding on the purchaser if the Distributor receives notice of the intention of the purchaser not to be bound by the agreement of purchase and sale within a specified time period.
8. The terms of an Investment Plan are such that an investor can terminate the instructions to the Distributor 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.
9. A Distributor not acting as an agent for the applicable investor is required pursuant to the Legislation to mail or deliver to all Participants who purchase securities of Funds pursuant to an Investment Plan, the current simplified prospectus of the applicable Funds at the time the investor enters into the Investment Plan and thereafter, any new prospectus or amendment thereto (a Renewal Prospectus) filed pursuant to the Legislation.
10. There is significant cost involved in the annual printing and mailing or delivery of the Renewal Prospectus to Participants. The annual cost of production of a Renewal Prospectus is borne by the applicable Fund. In addition, mailing costs are incurred.
11. Securityholders of the Funds who are currently Participants would be sent notice (the Notice) advising them of the terms of the relief and that Participants will not receive any Renewal Prospectus of the applicable Funds, unless they request it. The Notice will also advise the Participants that they may request the Renewal Prospectus by calling a toll-free phone number, by e-mail or by fax, and the Manager will send the Renewal Prospectus to any Participant that requests it. Participants will receive with the Notice a request form (the Request Form) under which the Participant may request, at no cost to the Participant, to receive the Renewal Prospectus.
12. The Notice will advise Participants that the Renewal Prospectus and any amendments thereto may be found either on the SEDAR website or on the applicable Fund's website. The Notice will also advise Participants that they can subsequently request the current Renewal Prospectus and any amendments thereto by contacting the applicable Distributor and will provide a toll-free telephone number for this purpose. The Notice will advise Participants that they will not have a right to withdraw (a Withdrawal Right) from an agreement of purchase and sale in respect of purchases pursuant to an Investment Plan, but that they will have a right (a Misrepresentation Right) of action for damages or rescission in the event the Renewal Prospectus contains a misrepresentation, whether or not they request the Renewal Prospectus; and that they will continue to have the right to terminate the Investment Plan at any time before a scheduled investment date.
13. Future investors who choose to become Participants and invest in any Funds in respect of which this relief applies will be advised in the documents they receive in respect of their participation in the Investment Plan or in the simplified prospectus of the Funds (in the section of the prospectus that describes the Investment Plan) of the terms of the relief and that Participants will not receive a Renewal Prospectus unless they request it at the time they decide to enrol in the Investment Plan or subsequently request it from the applicable Distributor. They will also be advised that a Renewal Prospectus and any amendments thereto may be found either on the SEDAR website or on the Fund's website. Future Participants will also be advised that they will not have a Withdrawal Right in respect of purchases 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 Renewal Prospectus, and they will have the right to terminate the Investment Plan at any time before a scheduled investment date.
14. Participants will also be advised annually in writing (in an account statement sent by the Distributor or otherwise) how they can request the current Renewal Prospectus and any amendments thereto and that they have a Misrepresentation Right.
15. Affiliates of the Filer, Scotia Securities Inc.(SSI) and Scotia Capital Inc. (SCI), were granted identical relief in the Jurisdiction and the Non-Principal Jurisdictions, under an MRRS Decision Document dated March 12, 2004, by the Ontario Securities Commission as principal regulator for the decision (the Original Decision).
16. Pursuant to an internal reorganization effective November 1, 2009 the Filer, SSI, SCI and certain of their affiliates, the portfolio management and investment fund manager activities carried on by SSI and SCI (except for the portfolio management activities SCI carries on as an IIROC member) prior to November 1, 2009 will be transferred to and carried on by the Filer as of November 1, 2009. As a result of this reorganization, neither SSI nor SCI will, as of November 1, 2009, be relying on the relief granted under the Original Decision and the Filer will require the Delivery Requirement Relief as the Original Decision is not available to the Filer.
17. The Filer is, to the best of its knowledge, not in default of the securities legislation of any jurisdiction of Canada.
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 Delivery Requirement Relief is granted
1. in respect of purchases and sales of securities of the Funds to Participants who purchase the securities pursuant to an Investment Plan which is in existence on the date of this decision provided that:
(i) Participants who are current securityholders of the Funds are or have been sent the Notice described in paragraph 11 above containing the information described in paragraph 12 above, together with the Request Form referred to in paragraph 11 above, or are or have been advised, in the simplified prospectus of the applicable Funds or in the documents they receive in respect of their participation in the Investment Plan, of the information described in paragraph 13 above;
(ii) under the terms of the Investment Plan, a Participant can terminate participation in the Investment Plan at any time;
(iii) Participants are advised annually in writing (in an account statement sent by the Distributor or otherwise) how they can request the current Renewal Prospectus and any amendments thereto and that they have a Misrepresentation Right; and
(iv) the Misrepresentation Right in the securities legislation of a jurisdiction is maintained in respect of a Participant whether or not a Renewal Prospectus is requested or received,
and
2. in respect of purchases and sales of securities of the Funds to Participants who purchase the securities pursuant to an Investment Plan which is established after the date of this decision provided that:
(i) Participants are advised, in the simplified prospectus of the applicable Funds or in the documents they receive in respect of their participation in the Investment Plan, of the information described in paragraph 13 above;
(ii) under the terms of the Investment Plan, a Participant can terminate participation in the Investment Plan at any time;
(iii) Participants are advised annually in writing (in an account statement sent by the Distributors or otherwise) how they can request the current Renewal Prospectus and any amendments thereto and that they have a Misrepresentation Right; and
(iv) the Misrepresentation Right in the securities legislation of a jurisdiction is maintained in respect of a Participant whether or not a Renewal Prospectus is requested or received.
The decision, as it relates to a jurisdiction, will terminate one year after the publication in final form of any legislation or rule dealing with the Delivery Requirement
This decision is effective on November 1, 2009.