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Maxxum Financial services Co. & Janus RSP American Vaule Fund - MRRS Decision
Headnote
Investment for specified purpose by mutual funds in securities of another mutual fund that is under commonmanagement exempted from the requirements of clauses 111(2)(b), 111(2)(c) subsection 111(3), clauses 117(1)(a), and117(1)(d) subject to certain specified conditions.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c.S.5, as am. ss. 111(2)(b), 111(2)(c), 111(3), 113, 117(1)(a), 117(1)(d), 117(2),and 121(2)(a)(ii).
IN THE MATTER OF
THE SECURITIES LEGISLATION 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
MAXXUM FINANCIAL SERVICES CO. AND
JANUS RSP AMERICAN VALUE FUND
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 Maxxum Financial Services Co. ("Maxxum Financial"), Janus RSP American ValueFund and other mutual funds managed by Maxxum Financial on or after the date of this Decision (defined herein) havingan investment objective that is linked to the returns or portfolio of another specified Maxxum Financial managed mutualfund (collectively referred to as the "Top Funds") (the funds in which such investments are to be made being collectivelyreferred to as the "Underlying Funds") for a decision by each Decision Maker (the "Decision") pursuant to the securitieslegislation of the Jurisdictions (the "Legislation") that:
1. the provisions contained in the Legislation prohibiting a mutual fund from knowingly making or holding aninvestment in a person or company in which the mutual fund, alone or together with one or more related mutualfunds, is a substantial security holder shall not apply in respect of investments to be made by the Top Fund inits corresponding Underlying Fund;
2. the provisions contained in the Legislation requiring a management company (or in British Columbia, a mutualfund manager) to file a report relating to a purchase or sale of securities between the mutual fund and anyrelated person or company, or any transaction in which, by arrangement other than an arrangement relatingto insider trading in portfolio securities, the mutual fund is a joint participant with one or more of its relatedpersons or companies shall not apply in respect of investments to be made by the Top Fund in itscorresponding Underlying Fund; and
3. the provisions contained in the Legislation prohibiting a mutual fund from knowingly making an investment inan issuer in which any person or company who is a substantial security holder of the mutual fund, itsmanagement company or distribution company has a significant interest shall not apply in respect ofinvestments to be made by the Top Fund in its corresponding Underlying Fund;
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 it has been represented by Maxxum Financial to the Decision Makers that:
1. Maxxum Financial is a general partnership formed under the laws of Ontario. Maxxum Financial is, or will be,the manager and promoter of the Top Funds and the Underlying Funds.
2. The Top Funds and Underlying Funds will be open-end mutual fund trusts established under the laws of theProvince of Ontario. The units of such Funds will be qualified for distribution in all of the provinces andterritories of Canada pursuant to simplified prospectuses and annual information forms.
3. The Top Funds and Underlying Funds will be reporting issuers in each of the provinces and territories ofCanada.
4. The simplified prospectuses will disclose the investment objectives, investment strategies, risks and restrictionsof the Top Funds and the Underlying Funds. The investment objective of the Top Funds will include disclosureof the names of the Underlying Funds.
5. Upon the creation of a Top Fund and an Underlying Fund, Maxxum Financial will invest seed money so thatfor a short period of time Maxxum Financial will have a significant interest in, and be a substantial securityholderof, both the Top Fund and the Underlying Fund.
6. The investment objectives of the Underlying Funds will be achieved through investment primarily in foreignsecurities.
7. To achieve their investment objective, the Top Funds will invest their assets in securities such that their unitswill, in the opinion of tax counsel to the Top Funds, be "qualified investments" for registered retirement savingsplans, registered retirement income funds, and deferred profit sharing plans (collectively, "Registered Plans")under the Income Tax Act (Canada) (the "Tax Act"). This will primarily be achieved through the implementationof a derivative strategy that provides a return linked to the returns of the Underlying Fund. The Top Fund willalso invest a portion of its assets directly in securities of the Underlying Fund. This investment will at all timesbe below the maximum foreign property limit described for Registered Plans (the "Permitted Limit").
8. The amount of direct investment by each Top Fund in its corresponding Underlying Fund will be adjusted fromtime to time so that, except for the transitional cash, the aggregate of the derivative exposure to, and directinvestment in, the Underlying Fund will equal 100% of the assets of that Top Fund.
9. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securitiesadministrators pursuant to National Instrument 81-102 Mutual Funds ("NI 81-102"), the investment by each TopFund in the relevant Underlying Fund has been and will be structured to comply with the investment restrictionsof the Legislation and NI 81-102.
10. In the absence of this Decision, pursuant to the Legislation, each of the Top Funds is prohibited from (a)knowingly making an investment in a person or company in which the mutual fund, alone or together with oneor more related mutual funds, is a substantial securityholder; and (b) knowingly holding an investment referredto in subsection (a) hereof. As a result, in the absence of this Decision, the Top Funds would be required todivest themselves of any investments referred to in subsection (a) herein.
11. In the absence of this Decision, the Legislation requires Maxxum Financial to file a report on every purchaseor sale of securities of the Underlying Funds by the Top Funds.
12. The Top Funds' investment in or redemption of units of their corresponding Underlying Funds will represent thebusiness judgment of "responsible persons" (as defined in the Legislation") uninfluenced by considerationsother than the best interests of the Top Funds.
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;
THE DECISION of the Decision Makers pursuant to the Legislation is that the applicable requirements shall notapply so as to prevent a Top Fund from making or holding an investment in securities of an Underlying Fund or requireMaxxum Financial 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 an Underlying 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 Fund in the Underlying Fund is compatible with the fundamental investmentobjectives of the Top Fund;
c. the investment objective of the Top Fund discloses that the Top Fund invests directly and indirectly(through derivative exposure) in the Underlying Fund, the name of the Underlying Fund and that theTop Fund is fully eligible for registered plans.
d. the Underlying Fund is not a mutual fund whose investment objective includes investing directly orindirectly in other mutual funds;
e. the Top Fund restricts its direct investment in the Underlying Fund to a percentage of its assets thatis within the Permitted Limit;
f. 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;
g. no sales charges are payable by the Top Fund in relation to its purchases of securities of theUnderlying Fund;
h. 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;
i. no fees and 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;
j. the arrangements between or in respect of the Top Fund and the Underlying Fund are such as toavoid the duplication of management fees;
k. any notice provided to securityholders of the Underlying Fund, as required by applicable laws or theconstating documents of the Underlying Fund, has been delivered by the Top Fund to itssecurityholders;
l. 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 Funds except to the extent the securityholders of the Top Fundhave directed;
m. 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
n. to the extent that the 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 simplifiedprospectus of the Top Fund.
March 19, 2001.
"J.A. Geller" "Stephen N. Adams"