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ING Investment Management, Inc. et al. - MRRS Decision
Headnote
Investment by mutual funds in a portfolio of specified mutual funds, comprised of mutual funds under commonmanagement and of third party managed mutual funds, exempted from the self-dealing prohibition in clause 111(2)(b)and subsection 111(3), and from reporting requirements of clauses 117(1)(a) and 117(1)(d) subject to certain specifiedconditions.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990, c.S.5, as am. Ss.111(2)(b), 111(3), 117(1)(a) & (d).
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA ALBERTA, SASKATCHEWAN,
ONTARIO, NOVA SCOTIA, NEWFOUNDLAND
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
ING INVESTMENT MANAGEMENT, INC.
AND
ENSEMBLE AGGRESSIVE EQUITY PORTFOLIO
ENSEMBLE MODERATE EQUITY PORTFOLIO
ENSEMBLE CONSERVATIVE EQUITY PORTFOLIO
ENSEMBLE AGGRESSIVE EQUITY RSP PORTFOLIO
ENSEMBLE MODERATE EQUITY RSP PORTFOLIO
ENSEMBLE CONSERVATIVE EQUITY RSP PORTFOLIO
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the "Decision Maker") in each of theprovinces of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the "Jurisdictions") hasreceived an application (the "Application") from ING Investment Management, Inc. ("ING"), in its own capacity and onbehalf of Ensemble Aggressive Equity Portfolio, Ensemble Moderate Equity Portfolio, Ensemble Conservative EquityPortfolio, Ensemble Aggressive Equity RSP Portfolio, Ensemble Moderate Equity RSP Portfolio and EnsembleConservative Equity RSP Portfolio (collectively, the "Top Funds", individually, the "Top Fund") for a decision (the"Decision") pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the following requirementsor prohibitions under the Legislation (the "Applicable Requirements") shall not apply in connection with the investmentby the Top Funds directly in a portfolio of securities of selected mutual funds (the "Underlying Funds", as further definedin paragraph 3 below):
(a) the provision prohibiting a mutual fund from knowingly making or holding an investment in a person or companyin which the mutual fund, alone or together with one or more related mutual funds, is a substantial securityholder; and
(b) the provision requiring a management company of a mutual fund, or in British Columbia, a mutual fundmanager, to file a report relating to a purchase or sale of securities between the mutual fund and any relatedperson or company, or any transaction in which, by arrangement other than an arrangement relating to insidertrading in portfolio securities, the mutual fund is a joint participant with one or more of its related persons orcompanies.
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS it has been represented by ING to the Decision Makers that:
1. ING is a corporation established under the laws of the Province of Ontario and will be the trustee, manager,investment advisor and promoter of each of the Top Funds.
2. Each of the Top Funds will be an open-end mutual fund trust governed by the laws of the province of Ontario.The securities of the Top Funds will be qualified for sale in each of the provinces and territories of Canada (the"Prospectus Jurisdictions") under a (final) simplified prospectus and annual information form that will be filedshortly in each of the Prospectus Jurisdictions under SEDAR project number 310375 (the Prospectus").
3. The Top Funds will each invest specified percentages (the"Fixed Percentages") of their assets (exclusive of cash andcash equivalents), as per the 2nd column of the tablebelow, in a portfolio of securities of specified UnderlyingFunds, as listed in the 3rd column of the table below:
| Top Fund |
Fixed Percentage of Net Assets
|
Underlying Funds
|
| Ensemble Aggressive Equity Portfolio |
10%
|
Trimark Enterprise Small Cap Fund |
|
10%
|
Trimark U.S. Companies Fund (Select Units) | |
|
10%
|
ING US Equity Fund (Investor Class Units) | |
|
5%
|
AIM European Growth Fund (Series A Units) | |
|
10%
|
Fidelity European Growth Fund (Series A Units) | |
|
10%
|
Fidelity Far East Fund (Series A Units) | |
|
5%
|
ING Japan Equity Fund (Investor Class Units) | |
|
5%
|
Fidelity Emerging Markets Portfolio Fund (Series A Units) | |
|
10%
|
Trimark Discovery Fund (Select Units) | |
|
10%
|
ING Global Technology Fund (Investor Class Units) | |
|
10%
|
ING Global Communications Fund (Investor Class Units) | |
|
5%
|
Fidelity Focus Health Care Fund (Series A Units) |
|
| Ensemble Moderate Equity Portfolio |
5%
|
ING Canadian Small Cap Equity Fund (Investor Class Units) |
|
10%
|
Fidelity True North Fund (Series A Units) | |
|
10%
|
Trimark U.S. Companies Fund (Select Units) | |
|
10%
|
Fidelity American Opportunities Fund (Series A Units) | |
|
5%
|
AIM European Growth Fund (Series A Units) | |
|
10%
|
ING Europe Equity Fund (Investor Class Units) | |
|
5%
|
ING Austral-Asia Equity Fund (Investor Class Units) | |
|
5%
|
Fidelity Japanese Growth Fund (Series A Units) | |
|
5%
|
ING Emerging Markets Equity Fund (Investor Class Units) | |
|
15%
|
Trimark Fund (SC Units) | |
|
5%
|
Trimark Discovery Fund (Select Units) | |
|
15%
|
Fidelity Focus Consumer Industries Fund (Series A Units) |
|
| Ensemble Conservative Equity Portfolio |
5%
|
Trimark Enterprise Small Cap Fund |
|
10%
|
ING Canadian Equity Fund (Investor Class Units) | |
|
5%
|
AIM Canadian First Class (Series A Shares) | |
|
5%
|
Fidelity Disciplined Equity Fund (Series A Units) | |
|
15%
|
Trimark U.S. Companies Fund (Select Units) | |
|
10%
|
ING US Equity Fund (Investor Class Units) | |
|
5%
|
Fidelity Growth America Fund (Series A Units) | |
|
5%
|
AIM European Growth Fund (Series A Units) | |
|
10%
|
ING Europe Equity Fund (Investor Class Units) | |
|
5%
|
Fidelity Far East Fund (Series A Units) | |
|
15%
|
Fidelity International Portfolio Fund (Series A Units) | |
|
10%
|
ING Canadian Resources Fund (Investor Class Units) |
|
| Ensemble Aggressive Equity RSP Portfolio |
10%
|
ING Canadian Communications Fund (Investor Class Units) |
|
5%
|
AIM Canada Growth Class (Series A Shares) | |
|
10%
|
ING Canadian Equity Fund (Investor Class Units) | |
|
15%
|
AIM Canadian First Class (Series A Shares) | |
|
10%
|
Trimark Enterprise Small Cap Fund | |
|
10%
|
Fidelity True North Fund (Series A Units) | |
|
15%
|
Fidelity Canadian Aggressive Fund (Series A Units) | |
|
5%
|
ING Global Technology Fund (Investor Class Units) | |
|
5%
|
Fidelity Far East Fund (Series A Units) | |
|
5%
|
Trimark Discovery Fund (Select Units) | |
|
5%
|
ING Europe Equity Fund (Investor Class Units) | |
|
5%
|
Fidelity Emerging Markets Portfolio Fund (Series A Units) |
|
| Ensemble Moderate Equity RSP Portfolio |
15%
|
AIM Canadian First Class (Series A Shares) |
|
10%
|
Trimark Enterprise Small Cap Fund | |
|
10%
|
ING Canadian Financial Services Fund (Investor Class Units) | |
|
5%
|
ING Canadian Communications Fund (Investor Class Units) | |
|
15%
|
ING Canadian Equity Fund (Investor Class Units) | |
|
10%
|
Fidelity True North Fund (Series A Units) | |
|
10%
|
Fidelity Disciplined Equity Fund (Series A Units) | |
|
5%
|
Fidelity American Opportunities Fund (Series A Units) | |
|
5%
|
AIM European Growth Fund (Series A Units) | |
|
5%
|
ING Austral-Asia Equity Fund (Investor Class Units) | |
|
5%
|
Fidelity Focus Technology Fund (Series A Units) | |
|
5%
|
Trimark Fund (SC Units)
|
|
| Ensemble Conservative Equity RSP Portfolio |
25%
|
ING Canadian Equity Fund (Investor Class Units) |
|
15%
|
AIM Canadian First Class (Series A Shares) | |
|
25%
|
Fidelity Disciplined Equity Fund (Series A Units) | |
|
10%
|
AIM Canada Growth Class (Series A Shares) | |
|
5%
|
ING US Equity Fund (Investor Class Units) | |
|
5%
|
Fidelity Far East Fund (Series A Units) | |
|
5%
|
Trimark U.S. Companies Fund (Select Units) | |
|
5%
|
Fidelity International Portfolio Fund (Series A Units) | |
|
5%
|
ING Europe Equity Fund (Investor Class Units) |
4. The Underlying Funds consist of funds that are managed by ING, as well as by arms-length third partymanagers, being AIM Funds Management Inc. ("AIM") and Fidelity Investments Canada Limited ("Fidelity",together with ING and AIM, the "Underlying Fund Managers").
5. The Underlying Funds are reporting issuers in each of the Prospectus Jurisdictions and are not in default ofany of the requirements of the securities legislation of any of the Prospectus Jurisdictions. The securities ofthe Underlying Funds are currently qualified for distribution pursuant to simplified prospectuses and annualinformation forms filed in each of the Prospectus Jurisdictions.
6. The Underlying Funds are not invested in other mutual funds, except to the extent permitted by section 2.5 ofNational Instrument 81-102 Mutual Funds ("NI 81-102"). The Top Funds will not invest in any mutual fundwhose investment objective includes investing in other mutual funds.
7. It is proposed by ING that the Fixed Percentages of assets invested by a Top Fund in the securities of theUnderlying Funds may not deviate more than 2.5% above or below the Fixed Percentages (the "PermittedRanges"). ING will review the investments made by each Top Fund in securities of the Underlying Funds ona daily basis and will adjust them as needed to keep within the Fixed Percentages.
8. In addition, the appropriateness of each Top Fund's selection of Underlying Funds and of the FixedPercentages will also be reviewed by ING on an ongoing basis to ensure that a particular Underlying Fund orFixed Percentage continues to be appropriate for a Top Fund's investment objectives. ING may, as the resultof that review, decide to change the Fixed Percentages in one or more Underlying Funds, remove an existingUnderlying Fund or add a new Underlying Fund. ING will give security holders of the Top Funds 60 days' priornotice of any such change and amend the Prospectus to reflect any such change.
9. The management fee structure for the Top Funds will be such as to avoid the duplication of management fees.The management fee charged by the Underlying Fund Managers will be reduced through the payment of amanagement fee rebate distribution (calculated and accrued daily and paid monthly or quarterly), by theUnderlying Funds to the Top Funds. The result will be that the aggregate of the management fees payable bya Top Fund at the Underlying Fund level and the management fee payable at the Top Fund level, willapproximately equal the management fee that is otherwise charged indirectly to the general investing publicat the Underlying Fund level, plus a fee equal to an estimated 30 to 55 basis points per annum. This fee willbe used to compensate the Manager for Underlying Fund selection, asset allocation and ongoing monitoring,re-balancing and such other related investment management services.
10. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securitiesadministrators pursuant to NI 81-102, the investments by the Top Funds in securities of the Underlying Fundshave been or will be structured to comply with the investment restrictions of the Legislation and NI 81-102.
11. In the absence of this Decision, pursuant to the Legislation, the Top Funds are each prohibited from (a)knowingly making an investment in securities of the Underlying Funds to the extent that the Top Fund, eitheralone or in combination with other ING managed funds, is a substantial security holder of the Underlying Funds;and (b) knowingly holding an investment referred to in subsection (a) hereof. As a result, in the absence of thisDecision, the Top Funds would be required to divest themselves of any investments referred to in subsections(a) and (b) herein.
12. In the absence of this Decision, the Legislation requires ING to file a report on every purchase or sale ofsecurities of the Underlying Funds by the Top Funds.
13. Each investment by the Top Funds in the securities of the Underlying Funds will be in the best interests of theTop Funds and will represent the business judgment of "responsible persons" (as defined in the Legislation),uninfluenced by considerations other than the best interests of the Top Funds and the Underlying Funds.
AND WHEREAS under the System, this MRRS Decision Document evidences the Decision of each DecisionMaker;
AND WHEREAS each Decision Maker is satisfied that the tests contained in the Legislation that provides theDecision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that the Applicable Requirements shallnot apply so as to prevent the Top Funds from investing in, or redeeming the securities of the Underlying Funds;
PROVIDED THAT IN RESPECT OF the investment by the Top Funds directly in securities of the UnderlyingFunds:
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 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 Underlying Funds,the following conditions are satisfied:
(a) the securities of both the Top Funds and the Underlying Funds are being offered for sale in thejurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information formwhich have been filed with and accepted by the Decision Maker;
(b) the investment by a Top Fund in the Underlying Funds is compatible with the investment objective ofthe Top Fund;
(c) the Prospectus discloses the intent of the Top Funds to invest in securities of the Underlying Funds,the names of the Underlying Funds, the Fixed Percentages and the Permitted Ranges within whichsuch Fixed Percentages may vary;
(d) the investment objective of the Top Fund discloses that the Top Fund invests its assets (exclusive ofcash and cash equivalents) in securities of the Underlying Funds in accordance with the FixedPercentages disclosed in the Prospectus;
(e) the Underlying Funds are not mutual funds whose investment objective includes investing directly orindirectly in other mutual funds;
(f) the Top Funds' holdings of securities of the Underlying Funds do not deviate from the PermittedRanges;
(g) any deviation from the Fixed Percentages is caused by market fluctuations only;
(h) if an investment by a Top Fund in any of the Underlying Funds has deviated from the PermittedRanges as a result of market fluctuations, the Top Fund's investment portfolio was re-balanced tocomply with the Fixed Percentages on the next day on which the net asset value was calculatedfollowing the deviation;
(i) if the Fixed Percentages and the Underlying Funds which are disclosed in the Prospectus have beenchanged, either the Prospectus has been amended or a new simplified prospectus filed to reflect thechange, and the security holders of the Top Fund have been given at least 60 days' notice of thechange;
(j) there are compatible dates for the calculation of the net asset value of the Top Funds and theUnderlying Funds for the purpose of the issue and redemption of the securities of such mutual funds;
(k) no sales charges are payable by the Top Funds in relation to their purchases of securities of theUnderlying Funds;
(l) no redemption fees or other charges are charged by an Underlying Fund in respect of the redemptionby a Top Fund of securities of the Underlying Fund owned by the Top Fund;
(m) no fees or charges of any sort are paid by a Top Fund and the Underlying Funds, by their respectivemanagers or principal distributors, or by any affiliate or associate of any of the foregoing entities, toanyone in respect of the purchase, holding or redemption by a Top Fund of the securities of theUnderlying Funds;
(n) the arrangements between or in respect of the Top Funds and the Underlying Funds are such as toavoid the duplication of management fees;
(o) any notice provided to security holders of an Underlying Fund, as required by applicable laws or theconstating documents of that Underlying Fund, has been delivered by a Top Fund to its securityholders along with all voting rights attached to the securities of the Underlying Fund which are directlyowned by the Top Fund;
(p) all of the disclosure and notice material prepared in connection with a meeting of security holders ofan Underlying Fund and received by a Top Fund has been provided to its security holders, the securityholders have been permitted to direct a representative of the Top Fund to vote its holdings in theUnderlying Fund in accordance with their direction, and the representative of the Top Fund has notvoted its holdings in the Underlying Funds except to the extent the security holders of the Top Fundhave directed;
(q) in addition to receiving the annual and, upon request, the semi-annual financial statements, of a TopFund, security holders of the Top Funds have received (i) appropriate summary disclosure in thefinancial statements of each Top Fund in respect of that Top Fund's holdings of securities of theUnderlying Funds; or (ii) upon request, the annual and semi-annual financial statements of theUnderlying Funds in either a combined report, containing financial statements of the Top Fund andof the Underlying Funds, or in a separate report containing the financial statements of the UnderlyingFunds; and
(r) to the extent that the Top Funds and the Underlying Funds do not use a combined simplifiedprospectus and annual information form containing disclosure about the Top Funds and theUnderlying Funds, copies of the simplified prospectus and annual information form of the UnderlyingFunds have been provided upon request to security holders of the Top Funds and this right isdisclosed in the Prospectus of the Top Funds.
January 30, 2001.
"J. A. Geller" "R. Stephen Paddon"