Mulvihill Capital Management Inc. et al.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from fund multi-layering restriction in paragraph 2.5(2)(b) of NI 81-102 to permit an investment fund to invest in another investment fund under common management that holds more than 10% of its net assets in securities of other investment funds -- Top funds are exchange-traded alternative mutual fund that seeks to achieve its investment objectives by investing part of its assets in preferred shares issued by split share corporations -- Underlying fund will be an exchange-traded alternative mutual fund that will primarily invest in an actively managed portfolio of preferred shares offered by split share corporations -- Top funds proposing to invest up to 20% of its assets in securities of the Underlying Fund as an efficient and cost-effective alternative to investing directly in a portfolio of individual preferred shares of split share corporations -- Relief granted from multi-layering restriction in paragraph 2.5(2)(b) to permit top fund to invest up to 20% of net assets in securities of underlying fund, subject to conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.5(2)(b) and 19.1.
March 6, 2025
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
MULVIHILL CAPITAL MANAGEMENT INC.
(the Filer)
AND
IN THE MATTER OF
MULVIHILL PREMIUM YIELD ETF,
MULVIHILL CANADIAN BANK ENHANCED YIELD ETF,
PREMIUM GLOBAL INCOME SPLIT CORP.
(each a Top Fund, and collectively the Top Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Top Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption from paragraph 2.5(2)(b) of National Instrument 81-102 -- Investment Funds (NI 81-102) to permit each of the Top Funds to purchase securities of Mulvihill Enhanced Split Preferred Share ETF (the Underlying Fund), which will hold more than 10% of its net asset value (NAV) in securities of other investment funds (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 the 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 other provinces and territories of Canada (together with the Jurisdiction, the Jurisdictions).
INTERPRETATION
Terms defined in National Instrument 14-101 -- Definitions, MI 11-102 and NI 81-102 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:
The Filer
1. The Filer is a corporation incorporated under the laws of Canada, with its head office located at 121 King Street West, Suite 2600, Toronto, Ontario, M5H 3X7.
2. The Filer is not in default of securities legislation in any of the Jurisdictions.
3. The Filer acts as investment fund manager and portfolio manager of the Top Funds and will act as investment fund manager and portfolio manager of the Underlying Fund.
4. The Filer is registered with the OSC as an investment fund manager, exempt market dealer and portfolio manager.
The Top Funds
5. Each Top Fund (other than Premium Global Income Split Corp.) is an exchange-traded fund organized and governed by the laws of the Province of Ontario.
6. Premium Global Income Split Corp. is a mutual fund corporation organized and governed by the laws of the Province of Ontario. The preferred shares and class A shares of Premium Global Income Split Corp. are listed for trading on the Toronto Stock Exchange (TSX).
7. The Top Funds are governed by the provisions of NI 81-102, subject to any exemption therefrom that may be granted by the securities regulatory authorities.
8. Each Top Fund (other than Premium Global Income Split Corp.) is a reporting issuer in each of the Jurisdictions which currently distributes its securities on a continuous basis under a long form prospectus, prepared pursuant to National Instrument 41-101 -- General Prospectus Requirements (NI 41-101) in the form of Form 41-101F2 -- Information Required in an Investment Fund Prospectus (Form 41-101F2) and Form 41-101F4 -- Information Required in an ETF Facts Document (Form 41-101F4).
9. Premium Global Income Split Corp. is a reporting issuer in each of the Jurisdictions which currently distributes its securities under an at-the-market offering in accordance with (a) the terms of an equity distribution agreement dated December 20, 2024 between the Filer in its own capacity and in its capacity as manager of Premium Global Income Split Corp., National Bank Financial Inc. and CIBC World Markets Inc. and (b) a prospectus supplement prepared pursuant to the fund's base shelf prospectus, prepared pursuant to National Instrument 44-102 -- Shelf Distributions and National Instrument 44-101 -- Short Form Prospectus Distributions and Form 44-101F1 -- Short Form Prospectus.
10. The securities of each of the Top Funds are traded on the TSX.
11. The investment objectives of Mulvihill Premium Yield Fund are to provide its unitholders with (a) high quarterly income on a tax efficient basis, (b) long-term capital appreciation through investment in a portfolio of high-quality equity securities and (c) lower overall portfolio volatility. The fund will write options to seek to earn tax efficient option premium, reduce overall portfolio volatility and enhance the portfolio's total return.
12. The investment objectives of Mulvihill Canadian Bank Enhanced Yield ETF are to provide its unitholders with long-term capital appreciation through exposure to a portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and The Toronto-Dominion Bank and monthly cash distributions.
13. The investment objectives of Premium Global Income Split Corp. are to (a) provide holders of preferred shares of the fund with fixed cumulative preferential monthly cash distributions in an amount of $0.0625 per preferred share, representing a yield on the $10.00 original issue price of the preferred shares of 7.5% per annum; (b) provide holders of class A shares with monthly cash distributions targeted to be 12.0% per annum payable monthly on the initial $8.00 net asset value per class A share of the fund; and (c) return the issue price to holders of both preferred shares and class A shares of the fund at the time of redemption of such shares on the June 30, 2029 termination date.
14. The Top Funds currently seek to achieve their investment objectives by investing in equity securities directly or indirectly by investing in other investment funds (including exchange-traded funds (ETFs) and/or split share corporations (Split Share Corporations)) which invest in equity and/or fixed income securities.
15. The Manager does not expect that a Top Fund's allocation to preferred shares issued by Split Share Corporations (Split Corp. Preferred Shares) will exceed 20% of its total asset value (at the time of purchase).
16. The Top Funds are subject to National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107).
17. The Top Funds wish to have the ability to purchase securities of the Underlying Fund which will hold more than 10% of its NAV in securities of other investment funds.
18. Each investment by a Top Fund in securities of the Underlying Fund will be made in accordance with the investment objectives of the Top Fund and will represent the business judgement of responsible persons uninfluenced by considerations other than the best interest of the Top Fund.
19. None of the Top Funds will sell short securities of the Underlying Fund.
The Underlying Fund
20. The Underlying Fund is an exchange-traded 'alternative mutual fund' organized and governed by the laws of the Province of Ontario.
21. The Underlying Fund is governed by the provisions of NI 81-102, subject to any exemption therefrom that may be granted by the securities regulatory authorities.
22. The Underlying Fund is a reporting issuer in each of the Jurisdictions which currently distributes its securities on a continuous basis under a long form prospectus, prepared pursuant to NI 41-101, in the form of Form 41-101F2 and Form 41-101F4.
23. The securities of the Underlying Fund are listed on the TSX.
24. The investment objectives of the Underlying Fund are to provide its unitholders with: (a) monthly distributions and (b) the opportunity for capital preservation, through investment in a portfolio consisting primarily of Split Corp. Preferred Shares of Split Share Corporations.
25. The investment strategy of the Underlying Fund is to primarily invest in an actively managed portfolio consisting primarily of Split Corp. Preferred Shares offered by Split Share Corporations listed on a Canadian exchange. The Underlying Fund may also invest in preferred shares of other issuers, ETFs and other investment funds managed by the Manager or a third-party manager (the ETFs and other investment funds are together referred to herein as the Other Funds), equities or income-generating securities, and securities that are convertible into any of the above noted securities provided such investments are consistent with the Underlying Fund's investment objectives.
26. The Underlying Fund is subject to NI 81-107.
27. The Top Funds and the Underlying Fund are related parties. The Filer will comply with its obligations under NI 81-107 in respect of any purchase by any of the Top Funds of securities of the Underlying Fund. All such related party transactions will be disclosed to securityholders of the applicable Top Fund in its management report of fund performance.
28. The market for the securities of the Underlying Fund is highly liquid as the market for the securities is supported by a designated broker which acts as an intermediary between investors and the Underlying Fund, standing in the market with bid and ask prices for such securities in order to maintain a liquid market for the securities of the Underlying Fund. As a result, the Filer expects the Top Funds will be able to dispose of securities of the Underlying Fund through market facilities in order to raise cash, including to fund the redemption requests from securityholders of the applicable Top Fund.
29. As the Underlying Fund's portfolio consists primarily of an actively managed portfolio of Split Corp. Preferred Shares of Split Share Corporations which are 'investment funds' within the meaning of the Securities Act (Ontario), and may also include securities of Other Funds, the Underlying Fund holds, and is expected to hold, more than 10% of its NAV in securities of other investment funds.
30. Each Split Share Corporation and the Other Fund held in the portfolio of the Underlying Fund is, and will be, a reporting issuer in the Jurisdictions and is, and will be, subject to the provisions of NI 81-102.
31. The Underlying Fund will not invest in physical commodities, use specified derivatives or engage in short selling.
General
32. In satisfaction of its targeted allocation to Split Corp. Preferred Shares, each Top Funds wishes to invest up to 20% of its total asset value (calculated at the time of purchase) in securities of the Underlying Fund as an efficient and cost-effective alternative to investing directly in individual Split Corp. Preferred Shares.
33. An investment in the Underlying Fund by the Top Funds will enable each of the Top Funds to diversify its portfolio holdings as the Underlying Fund is expected to hold securities of 15-20 Split Share Corporations and Other Funds.
34. Absent the Exemption Sought, an investment by the Top Funds in the Underlying Fund is prohibited by the multi-tiering restriction in paragraph 2.5(2)(b) of NI 81-102 because the Underlying Fund will hold more than 10% of its NAV in securities of other investment funds, consisting of Split Share Corporations and Other Funds.
35. An investment by any of the Top Funds in the Underlying Fund would not qualify for the exemptions in paragraph 2.5(4) of NI 81-102 from the multi-tiering restriction in paragraph 2.5(2)(b) of NI 81-102 because the Underlying Fund will not issue index participation units and will not be a clone fund or money market fund.
36. Except for paragraph 2.5(2)(b) of NI 81-102, each investment by each of the Top Funds in securities of the Underlying Fund will be made in accordance with the provisions of section 2.5 of NI 81-102.
37. There will be no duplication of management fees or incentive fees between a Top Fund and the Underlying Fund, and between the Underlying Fund and the Split Share Corporations and Other Funds.
38. No sales fees or redemption fees are payable by a Top Fund in relation to purchases or redemptions of the securities of the underlying funds in which it invests if such underlying funds are managed by the Manager or an affiliate or associate of the Manager and no sales fees or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of any unrelated investment fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund.
39. When the Underlying Fund invests in Split Corp. Preferred Shares of Split Share Corporations and securities of Other Funds that are managed by the Manager or third-party managers, no management fees or incentive fees are payable by the Underlying Fund that, to a reasonable person, would duplicate a fee payable by the Split Share Corporations and Other Funds for the same service.
40. No sales fees or redemption fees are payable by the Underlying Fund in relation to purchases and redemptions of Split Corp. Preferred Shares of Split Share Corporations and securities of Other Funds in which it invests if such investment funds are managed by the Manager or an affiliate and no sales fees or redemption fees are payable by the Underlying Fund in relation to its purchases or redemptions of securities of any unrelated investment fund that, to a reasonable person, would duplicate a fee payable by an investor in the Underlying Fund.
41. An investment in the Underlying Fund by a Top Fund should pose little investment risk to the Top Fund because the Underlying Fund, as well as the Split Share Corporations and Other Funds in which the Underlying Fund invests, are subject to NI 81-102, subject to any exemptions therefrom that may be granted by the securities regulatory authorities.
42. The Filer is of the view that granting the Exemption Sought is in the best interests of the Top Funds and is not prejudicial to the public interest or to securityholders of the Top Funds.
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 Filer is the investment fund manager and portfolio manager of each of the Top Funds and the Underlying Fund;
(b) an investment by a Top Fund in securities of the Underlying Fund is made in accordance with the investment objectives and strategies of the Top Fund;
(c) the investment strategies of a Top Fund, as disclosed in the prospectus of the Top Fund that is next receipted after the date of this decision, state that the Top Fund may invest in the Underlying Fund which may in turn invest more than 10% of its net assets in other investment funds that are related or unrelated to the Manager;
(d) an investment by a Top Fund in securities of the Underlying Fund will, immediately after purchase, comprise, in aggregate, no more than 20% of the total asset value of the Top Fund;
(e) neither the Underlying Fund nor any of the Split Share Corporations and Other Funds rely on any discretionary relief permitting the investment fund to exceed the leverage exposure otherwise permitted under NI 81-102 through the use of borrowing, short selling and specified derivatives;
(f) there is no duplication of management fees or incentive fees between a Top Fund and the Underlying Fund, and between the Underlying Fund and the Split Share Corporations and Other Funds; and
(g) a Top Fund's investment in securities of the Underlying Fund is otherwise made in compliance with all other requirements of section 2.5 of NI 81-102, except to the extent that discretionary relief has been granted from any such requirement.
"Darren McKall"
Manager, Investment Management Division
Ontario Securities Commission
Application File #: 2025/0116
SEDAR+ File #: 6246677