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Spectrum Investment Management Limited & Spectrum RRSP Tactonics Fund - MRRS Decision
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
SPECTRUM INVESTMENT MANAGEMENT LIMITED
AND SPECTRUM RRSP TACTONICS 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 Spectrum Investment Management Limited ("Spectrum Investments") in its owncapacity and on behalf of Spectrum RRSP TACTONICS Fund (the "RRSP TACTONICS Fund"), a mutual fund havingan investment objective or strategy that is linked to the returns or portfolio of the Spectrum TACTONICS Fund (the"TACTONICS Fund") while remaining 100% eligible for registered plans for a decision by each Decision Maker(collectively, the "Decision") pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the followingprohibitions or requirements under the Legislation (the "Requirements") shall not apply in respect of certain investmentsmade by the RRSP TACTONICS Fund in the TACTONICS Fund:
1. the restrictions 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 securityholder;
2. the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making or holding aninvestment in an issuer in which a person or company who is a substantial security holder of the mutual fundor its management company has a significant interest;
3. the requirements contained in the Legislation requiring the management company or, in British Columbia, amutual fund manager, to file a report relating to a purchase or sale of securities between the mutual fund andany related 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; and
4. the requirements contained in the Legislation prohibiting the portfolio manager or, in British Columbia, themutual fund, from knowingly causing an investment portfolio managed by it to invest in the securities of anissuer in which a "responsible person" (as that term is defined in the Legislation) is an officer or director unlessthe specific fact is disclosed to the client and, if applicable, the written consent of the client to the investmentis obtained before the purchase.
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 Spectrum Investments to the Decision Makers that:
1. Each of the TACTONICS Fund and the RRSP TACTONICS Fund is an open-ended mutual fund trustestablished under the laws of the Province of Ontario. Spectrum Investments is a corporation established underthe laws of Canada and for each of the TACTONICS Fund and the RRSP TACTONICS Fund is the managerand promoter. The head office of Spectrum Investments is in Toronto, Ontario.
2. Certain officers and/or directors of Spectrum Investments are also officers of the TACTONICS Fund and theRRSP TACTONICS Fund.
3. The TACTONICS Fund and the RRSP TACTONICS Fund are reporting issuers. The securities of theTACTONICS Fund and the RRSP TACTONICS Fund are qualified under a simplified prospectus and annualinformation form filed in all provinces and territories. Neither the TACTONICS Fund nor the RRSP TACTONICSFund is in default of any requirements of the Legislation.
4. The simplified prospectus will disclose the investment objectives, investment strategies, risks and restrictionsof the TACTONICS Fund and the RRSP TACTONICS Fund. The investment objective of the RRSPTACTONICS Fund will include disclosure of the name of the TACTONICS Fund.
5. The investment objectives of the TACTONICS Fund are achieved through investment primarily in foreignsecurities.
6. To achieve its investment objective, the RRSP TACTONICS Fund invests its assets such that the securities ofthe RRSP TACTONICS Fund will, in the opinion of tax counsel to the RRSP TACTONICS Fund, be "qualifiedinvestments" for registered retirement savings plans, registered retirement income funds, and deferred profitsharing plans (collectively, "Registered Plans") and will not constitute "foreign property" under the Income TaxAct (Canada). This will primarily be achieved through the implementation of a derivative strategy that providesa return linked to the returns of the TACTONICS Fund. The RRSP TACTONICS Fund will also invest a portionof its assets directly in securities of the TACTONICS Fund. This investment will at all times be below themaximum foreign property limit prescribed for Registered Plans (the "Permitted Limit").
7. The amount of direct investments by the RRSP TACTONICS Fund in the TACTONICS Fund will be adjustedfrom time to time so that, except for transitional cash (ie. cash from purchases not yet invested or cash heldto satisfy redemptions), the aggregate of derivative exposure to, and direct investment in, the TACTONICSFund will equal 100% of the assets of each of the RRSP TACTONICS Fund.
8. Spectrum Investments is a wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").As a life insurance company, Sun Life makes a large number of investments in various capacities (principal andagent), and those investments include various Spectrum mutual funds. Sun Life may hold and/or acquire unitsof the TACTONICS Fund and/or the RRSP TACTONICS Fund, and may increase or decrease any suchholdings from time to time based in part upon the investment needs and/or instructions of clients. As a result,Sun Life may from time to time hold more than 20% of the outstanding units of the RRSP TACTONICS Fundat the same time that it holds more than 10% of the outstanding units of the TACTONICS 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 investments by theRRSP TACTONICS Fund in the TACTONICS Fund have been structured to comply with the investmentrestrictions of the Legislation and NI 81-102.
10. In the absence of the Decision, pursuant to the Legislation, the RRSP TACTONICS Fund 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; (b) knowingly making an investment in an issuerin which a person or company who is a substantial security holder of the mutual fund or its managementcompany has a significant interest; and (c) knowingly holding an investment referred to in subsections (a) or(b) hereof. As a result, in the absence of this Decision, the RRSP TACTONICS Fund would be required todivest itself of any investments referred to in subsection (a) or (b) hereof.
11. In the absence of this Decision, the Legislation requires Spectrum Investments to file a report on everyinvestment of securities of the TACTONICS Fund by the RRSP TACTONICS Fund.
12. In the absence of this Decision, Spectrum Investments is prohibited from causing the RRSP TACTONICS Fundto invest in the TACTONICS Fund unless the specific fact that certain officers and/or directors of SpectrumInvestments are also officers of the TACTONICS Fund is disclosed to securityholders of the RRSP TACTONICSFund and the written consent of securityholders of the RRSP TACTONICS Fund is obtained before thepurchase.
13. The investments by the RRSP TACTONICS Fund in securities of the TACTONICS Fund will represent thebusiness judgment of "responsible persons" (as defined in the Legislation) uninfluenced by considerations otherthan the best interests of the RRSP TACTONICS Fund.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences 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 Requirements do not apply tothe RRSP TACTONICS Fund or Spectrum Investments, as the case may be, in respect of investments to be made bythe RRSP TACTONICS Fund in securities of the TACTONICS Fund.
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.
2. the Decision shall only apply if, at the time the RRSP TACTONICS Fund makes or holds an investment in theTACTONICS Fund, the following conditions are satisfied:
a. the securities of both the RRSP TACTONICS Fund and the TACTONICS Fund are being offered forsale in the jurisdiction of the Decision Maker pursuant to a simplified prospectus and annualinformation form which has been filed with and accepted by the Decision Maker;
b. the investment by the RRSP TACTONICS Fund in the TACTONICS Fund is compatible with thefundamental investment objectives of the RRSP TACTONICS Fund;
c. the investment objective of the RRSP TACTONICS Fund discloses that the RRSP TACTONICS Fundinvests directly and indirectly (through derivative exposure) in the TACTONICS Fund, the name of theTACTONICS Fund and that the RRSP TACTONICS Fund is fully eligible for registered plans;
d. the simplified prospectus of the RRSP TACTONICS Fund discloses the structure of the RRSPTACTONICS Fund and the risks related to the structure;
e. the TACTONICS Fund is not a mutual fund whose investment objective includes investing directly orindirectly in other mutual funds, unless those mutual funds are index participation units, as defined inNI 81-102;
f. the RRSP TACTONICS Fund restricts its direct investment in the TACTONICS Fund to a percentageof its assets that is within the Permitted Limit;
g. there are compatible dates for the calculation of the net asset value of the RRSP TACTONICS Fundand the TACTONICS Fund for the purpose of the issue and redemption of securities of such mutualfunds;
h. no sales charges are payable by the RRSP TACTONICS Fund in relation to its purchases of securitiesof the TACTONICS Fund;
i. no redemption fees or other charges are charged by the TACTONICS Fund in respect of theredemption by the RRSP TACTONICS Fund of securities of the TACTONICS Fund owned by theRRSP TACTONICS Fund;
j. no fees and charges of any sort are paid by the RRSP TACTONICS Fund and the TACTONICS Fund,by their respective managers or principal distributors, or by any affiliate or associate of any of theforegoing entities to anyone in respect of the RRSP TACTONICS Fund's purchase, holding orredemption of the securities of the TACTONICS Fund;
k. the arrangements between or in respect of the RRSP TACTONICS Fund and the TACTONICS Fundare such as to avoid the duplication of management fees;
l. any notice provided to securityholders of the TACTONICS Fund, as required by applicable laws or theconstating documents of the TACTONICS Fund, has been delivered by the RRSP TACTONICS Fundto its securityholders;
m. all of the disclosure and notice material prepared in connection with a meeting of securityholders ofthe TACTONICS Fund and received by the RRSP TACTONICS Fund has been provided to itssecurityholders, the securityholders have been permitted to direct a representative of the RRSPTACTONICS Fund to vote its holdings in the TACTONICS Fund in accordance with their direction, andthe representative of the RRSP TACTONICS Fund has not voted its holdings in the TACTONICS Fundexcept to the extent the securityholders of the RRSP TACTONICS Fund have directed;
n. in addition to receiving the annual and, upon request, the semi-annual financial statements of theRRSP TACTONICS Fund, securityholders of the RRSP TACTONICS Fund have received the annualand, upon request, the semi-annual financial statements, of the TACTONICS Fund in either acombined report, containing financial statements of the RRSP TACTONICS Fund and theTACTONICS Fund, or in a separate report containing the financial statements of the TACTONICSFund; and
o. to the extent that the RRSP TACTONICS Fund and the TACTONICS Fund do not use a combinedsimplified prospectus and annual information form containing disclosure about the RRSP TACTONICSFund and the TACTONICS Fund, copies of the simplified prospectus and annual information form ofthe TACTONICS Fund have been provided upon request to securityholders of the RRSP TACTONICSFund and the right to receive these documents is disclosed in the simplified prospectus of the RRSPTACTONICS Fund.
April 4, 2001.
"Howard I. Wetston" "Paul Moore"