Fédération des Caisses Desjardins du Québec and Desjardins Short-Term Income Fund - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted to permit manager, on behalf of a mortgage fund, to purchase and sell mortgages from and to certain affiliates - Relief subject to conditions including IRC approval and valuation in accordance with NP 29.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.2, 19.1.

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 7.2.

June 9, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, YUKON and NUNAVUT

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

FÉDÉRATION DES CAISSES DESJARDINS

DU QUÉBEC

(the Filer)

AND

IN THE MATTER OF

DESJARDINS SHORT-TERM INCOME FUND

(the Fund)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (Decision Maker) in each of the Jurisdictions received an application from the Filer on behalf of the Fund under section 19.1 of National Instrument 81-102 Mutual Funds (NI 81-102) for relief from the prohibition in Section 4.2 of NI 81-102 in connection with transactions in mortgages between a Related Party (as defined below) and the Fund (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications (MRRS):

(a) the Autorité des marchés financiers (AMF) is the principal regulator for this application; and

(b) this MRRS decision document (Decision) represents the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions (NI 14-101) and in NI 81-102 have the same meaning in this Decision unless they are otherwise defined in this Decision. The following additional terms shall have the following meanings:

"NI 81-107" means National Instrument 81-107 Independent Review Committee for Investment Funds;

"Portfolio Adviser" means Desjardins Global Asset Management Inc.; and

"Related Party" means each of Desjardins Trust Inc., the Filer, or an affiliate or associate of one of them, other than the Portfolio Advisor.

Representations

1. Fédération des caisses Desjardins du Québec is a body corporate constituted under the laws of Québec.

2. The Filer is the manager of the Fund and Desjardins Trust Inc. is the trustee of the Fund.

3. The Fund has an investment objective that permits the Fund to invest in mortgages.

4. The Fund is an open-end mutual fund, organized as a trust, and is a reporting issuer under the legislation of each of the Jurisdictions.

5. The Filer has appointed an independent review committee (IRC) under NI 81-107 for the Fund.

6. The Filer has appointed the Portfolio Advisor to provide portfolio management and investment advisory services to the Fund.

7. The Related Party is an associate or affiliate of the Fund's manager, portfolio advisor or trustee. The Fund may purchase the mortgages for its portfolio from the Related Party.

8. Desjardins Trust Inc. and the Filer have agreed to repurchase, or cause to be repurchased, from the Fund any mortgage the Fund has purchased from them that is in default or is not a valid first mortgage.

9. Neither the Related Party, nor any of its directors, officers or employees participates in the formulation of investment decisions made on behalf of, or advice given to, the Fund by the Portfolio Advisor. In all circumstances, the decisions to purchase mortgages for the Fund's portfolio from the Related Party are made based on the judgement of responsible persons uninfluenced by considerations other than the best interests of the Fund.

10. Section 4.2 of NI 81-102 prohibits a mutual fund from purchasing a security from or selling a security to an associate or affiliate of the manager, portfolio adviser or trustee of the mutual fund.

11. The Fund is prohibited by section 4.2 of NI 81-102 from purchasing mortgages from or selling mortgages to the Related Party.

12. The Fund is not able to rely on the exemption contained in paragraph 4.3(1) of NI 81-102 because purchases of mortgages will not be made on an exchange as required by paragraph 4.3(1) of NI 81-102.

13. The Fund is not be able to rely on the exemption contained in paragraph 4.3(2) of NI 81-102 because the mortgages will not be purchased from another mutual fund.

14. The provisions of National Policy Statement No. 29 -- Mutual Funds Investing in Mortgages (NP 29) set out guidelines relating to the acquisition of mortgages by a mutual fund from lending institutions with whom such fund does not deal at arm's length and provide certain protections to the investing public.

15. The IRC of the Fund will consider the policies and procedures of the Filer and will provide its approval on whether the proposed transactions in mortgages achieve a fair and reasonable result for the Fund in accordance with section 5.2(2) of NI-81-107.

16. To the extent that the Fund is purchasing mortgages from, or selling mortgages to, the Related Party, this fact is set out, and will continue to be set out, in the annual information form of the Fund.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Makers with the jurisdiction to make the decision has been met.

The decision of the Decision Makers is that the Requested Relief is granted on the conditions that:

(a) the purchase or sale is consistent with, or is necessary to meet, the investment objective of the Fund;

(b) the IRC of the Fund has approved the transaction in accordance with section 5.2(2) of NI 81-107;

(c) the Filer, as manager of the Fund, complies with section 5.1 of NI 81-107;

(d) the Filer, as manager of the Fund, and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;

(e) the Fund keeps the written records required by section 6.1(2)(g) of NI 81-107; and

(f) the mortgages are acquired from the Related Party or sold to the Related Party in accordance with NP 29 (or any successor policy or instrument) and disclosed in accordance with NP29 (or any successor policy or instrument), including disclosure through inclusion in a document incorporated by reference into the prospectus of the Fund.

"Josée Deslauriers"
Director of Capital Markets