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BLC-Edmond De Rothschild Asset Management - MRRS Decision
Headnote
Investment by mutual funds in securities of another mutual fund that is under common management for specifiedpurpose exempted from the requirements of clause 111(2)(b), subsection 111(3) clauses 117(1)(a) and 117(1)(d) subjectto certain specified conditions.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c.S.5, as am. ss. 111(2)(b), 111(3), 113, 117(1)(a), 117(1)(d), 117(2).
IN THE MATTER OF
THE SECURITIES LEGISLATION OF THE PROVINCES OF BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, ONTARIO, NOVA SCOTIA AND NEWFOUNDLAND
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BLC-EDMOND DE ROTHSCHILD ASSET MANAGEMENT INC.
("BLC-Rothschild")
AND
R LIFE & HEALTH RSP FUND
R WORLD LEADERS RSP FUND
R AMERICAN RSP FUND
R EUROPEAN RSP FUND
R ASIAN RSP FUND
R TECHNO-MEDIA RSP FUND
(collectively, the "Existing Top Funds")
AND
R EUROPE TECHNO-MEDIA RSP FUND
R SMALL & MID-CAP EUROPEAN RSP FUND
(collectively, the "New Top Funds")
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provincesof British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the "Jurisdictions") has receivedan application (the "Application") from BLC-Rothschild as manager of the Existing Top Funds and the New Top Fundsand other mutual funds managed by BLC-Rothschild after the date of this Decision (the "Future Top Funds", andtogether with the Existing Top Funds and the New Top Funds, the "Top Funds") having an investment objective orstrategy that is linked to the returns of another specified BLC-Rothschild mutual fund for a decision by each DecisionMaker (collectively, the "Decision") under the securities legislation of the Jurisdictions (the "Legislation") that the followingprovisions of the Legislation (the"Applicable Legislation") shall not apply to the Top Funds or BLC-Rothschild, as thecase may be, in respect of certain investments to be made by the Top Funds in applicable corresponding mutual fundsfrom time to time (the funds in which such investments are to be made, collectively referred to as the "UnderlyingFunds"):
1. the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making and holding aninvestment in a person or company, in which the mutual fund, alone or together with one or more related mutual funds,is a substantial securityholder; and
2. the requirements contained in the Legislation requiring the management company to file a report relating to apurchase or sale of securities between the mutual fund and any related person or company, or any transactionin which, by arrangement other than an arrangement relating to insider trading in portfolio securities, the mutualfund is a joint participant with one or more of its related persons or companies.
AND WHEREAS the Decision Maker in each of the Jurisdictions has received an application from BLC-Rothschild, as manager of the Existing Top Funds for a Decision under the Legislation revoking and replacing the MRRSDecision Document dated January 11, 2000 entitled "In the Matter of R American RSP Fund et al" (the "OriginalDecision") which decided that the Applicable Legislation and other requirements of the Legislation which applied to theExisting Top Funds and BLC-Rothschild at the time of the Original Decision, did not apply in respect of certaininvestments made by the Existing Top Funds in their corresponding Underlying Funds.
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS BLC-Rothschild has represented to the Decision Makers that:
1. The Top Funds and the Underlying Funds are or will be open-end mutual fund trusts established under the lawsof the Province of Ontario, and each Top Fund and Underlying Fund is, or will be, qualified for distribution inthe Jurisdictions by means of a prospectus. The Existing Top Funds and their corresponding Underlying Fundsare qualified for distribution in all the provinces of Canada except Prince Edward Island pursuant to simplifiedprospectuses and annual information forms dated December 15, 1999 and February 18, 2000 (forNewfoundland, New Brunswick and Nova Scotia). Each of the New Top Funds and their correspondingUnderlying Funds will be established on or immediately prior to the date on which a receipt is issued by theDecision Makers for the simplified prospectus and annual information form qualifying the units of the New TopFunds and their corresponding Underlying Funds for distribution to the public (the "Prospectus").
2. BLC-Rothschild is a corporation established under the laws of Canada and constitutes a joint venture betweenLaurentian Bank of Canada (the "Bank") and La Compagnie Financière Edmond de Rothschild Banque("Rothschild"). BLC-Rothschild, the Bank and Rothschild are or will be considered the promoters of the TopFunds and Underlying Funds, where such concept exists, under the securities legislation of the Jurisdictions.
3. The trustee of the of the Top Funds and Underlying Funds is or will be Laurentian Trust of Canada Inc., awholly-owned subsidiary of the Bank.
4. Each Existing Top Fund and its corresponding Underlying Fund is not in default of any requirements of theLegislation.
5. Each Top Fund seeks or will seek, to achieve its investment objective while ensuring that securities of the TopFund do not constitute "foreign property" for registered retirement savings plans ("RRSPs"), including "groupRRSPs" and locked-in retirement accounts, registered retirement income funds, including life income funds,deferred profit sharing plans and registered education savings plans (the "Registered Plans").
6. The Prospectus for each Top Fund does, or will, contain disclosure with respect to the investment objective,strategies, risks and restrictions of the Top Fund and the Underlying Fund.
7. The investment objective of the Top Fund is, or will be, to achieve long-term capital appreciation primarily byinvesting in derivative instruments that permit the Top Fund to link its performance to its named correspondingUnderlying Fund, while ensuring that securities of the Top Fund do not constitute "foreign property" forRegistered Plans. In order to achieve its investment objective, each Top Fund will invest directly in, and willuse derivative instruments to obtain exposure to, its corresponding Underlying Fund, as described in paragraph9 herein.
8. The investment objective of each Underlying Fund is, or will be, achieved through investment primarily inforeign securities.
9. Each Top Fund does, or will, invest, its assets in securities such that its securities will be "qualified investments"for Registered Plans and will not constitute foreign property in a Registered Plan. The direct investment by eachTop Fund in its corresponding Underlying Fund is, or will be, in an amount which will not exceed the amountprescribed from time to time as the maximum permitted amount capable of being made as a foreign propertyinvestment under the Income Tax Act without the imposition of tax under Part XI of that Act (the "PermittedLimit"). The amount of direct investment by each Top Fund will be adjusted from time to time so that, exceptfor transitional cash, the aggregate of direct investment in, and derivative exposure to, its correspondingUnderlying Fund will equal 100% of the assets of the Fund.
10. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securitiesadministrators pursuant to National Instrument 81-102, the investments by a Top Fund in its correspondingUnderlying Fund has been, and will be, structured to comply with the investment restrictions of the Legislationand National Instrument 81-102.
11. In the absence of this Decision, each Top Fund would be prohibited from (a) knowingly making an investmentin a person or company in which the mutual fund, alone or together with one or more related mutual funds, isa substantial securityholder; and (b) knowingly holding an investment referred to in subsection (a) hereof. Asa result, in the absence of this Decision, a Top Fund would be required to divest itself of any investmentsreferred to in subsection (a) herein.
12. In the absence of this Decision, BLC-Rothschild would be required to file a report of every purchase or sale bya Top Fund of the securities of its corresponding Underlying Fund.
13. Each Top Fund's investment in, or redemption of, securities of its corresponding Underlying Fund represents,or will represent, as the case may be, the business judgement of responsible persons uninfluenced byconsiderations other than the best interests of the Top Fund.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;
AND WHEREAS the Decision Makers are of the opinion that it would not be prejudicial to the public interestto make the Decision;
THE DECISION of the Decision Makers pursuant to the Legislation is that the Original Decision is herebyrevoked and replaced with the following Decision with effect as of, and from, the date hereof; and
THE DECISION of the Decision Makers pursuant to the Legislation is that the Applicable Legislation shall notapply so as to prevent each Top Fund from making and holding an investment in securities of the correspondingUnderlying Fund or require BLC-Rothschild to file a report relating to the purchase or sale of such securities.
PROVIDED IN EACH CASE THAT:
1. the Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that Decision Maker dealing with the matters in section 2.5 of NI 81-102;and
2. the Decision shall only apply if, at the time a Top Fund makes or holds an investment in its correspondingUnderlying Fund, the following conditions are satisfied:
(a) the securities of both the Top Fund and the Underlying Fund are being offered for sale in thejurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information formwhich has been filed with and accepted by the Decision Maker;
(b) the investment by the Top Funds in the Underlying Fund is compatible with the fundamentalinvestment objectives of the Top Fund;
(c) the simplified prospectus discloses the intent of the Top Fund to invest directly and indirectly (throughderivative exposure) in the Underlying Fund;
(d) the investment objective of the Top Fund discloses the name of the Underlying Fund;
(e) the Underlying Fund is not a mutual fund whose investment objective includes investing directly orindirectly in other mutual funds;
(f) the Top Fund restricts its direct investment in the Underlying Fund to a percentage of its assets thatis within the Permitted Limit;
(g) the Top Fund invests its assets directly and indirectly (through derivative exposure) in the UnderlyingFund in accordance with this Decision and as is disclosed in the simplified prospectus;
(h) there are compatible dates for the calculation of the net asset value of the Top Fund and theUnderlying Fund for the purpose of the issue and redemption of securities of such mutual funds;
(i) no sales charges are payable by the Top Fund in relation to its purchases of securities of theUnderlying Funds;
(j) no redemption fees or other charges are charged by the Underlying Fund in respect of the redemptionby the Top Fund of securities of the Underlying Fund owned by the Top Fund;
(k) no fees or charges of any sort are paid by the Top Fund and the Underlying Fund, by their respectivemanagers or principal distributors, or by any affiliate or associate of any of the foregoing entities, toanyone in respect of the Top Fund's purchase, holding or redemption of the securities of theUnderlying Fund;
(l) the arrangements between or in respect of the Top Fund and the Underlying Fund are such as toavoid the duplication of management fees;
(m) any notice provided to securityholders of the Underlying Fund as required by applicable laws or theconstating documents of that Underlying Fund, has been delivered by the Top Fund to itssecurityholders along with all voting rights attached to the securities of the Underlying Fund which aredirectly owned by the Top Fund;
(n) all of the disclosure and notice material prepared in connection with a meeting of securityholders ofthe Underlying Fund and received by the Top Fund has been provided to its securityholders, thesecurityholders have been permitted to direct a representative of the Top Fund to vote its holdings inthe Underlying Fund in accordance with their direction, and the representative of the Top Fund hasnot voted its holdings in the Underlying Fund except to the extent the securityholders of the Top Fundhave directed;
(o) in addition to receiving the annual and, upon request, the semi-annual financial statements, of the TopFund, securityholders of the Top Fund have received the annual and, upon request, the semi-annualfinancial statements of the Underlying Fund in either a combined report, containing financialstatements of the Top Fund and the Underlying Fund, or in a separate report containing the financialstatements of the Underlying Fund; and
(p) to the extent that a Top Fund and the Underlying Fund do not use a combined simplified prospectusand annual information form containing disclosure about the Top Fund and the Underlying Fund,copies of the simplified prospectus and annual information form of the Underlying Fund have beenprovided upon request to securityholders of the Top Fund and this right is disclosed in the prospectusof the Top Fund;
December 22nd, 2000.
"Howard I. Wetston" "J. A. Geller"