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Burgundy Asset Management Limited et al.
Headnote
Mutual fund that is not a reporting issuer isexempt from clauses 111(2)(b) and (c) and subsection 111(3)of the Act in connection with investment in one more other mutualfunds in a fund-on-fund structure - management company of anunderlying mutual fund that is a reporting issuer is exemptfrom the reporting requirement of clause 117(1)(a) of the Actin connection with sale of its units to the top mutual fundin a fund-on-fund structure
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c. S.5,as am., ss. 111(2)(b) and (c), 111(3), 113(a), 117(1(a) and117(2).
IN THE MATTER OF
THE SECURITIES ACT R.S.O.1990
C. S.5, AS AMENDED (THE "ACT")
AND
IN THE MATTER OF
BURGUNDY ASSET MANAGEMENTLTD.
BURGUNDY BALANCED PENSIONFUND AND
BURGUNDY BALANCED FOUNDATIONFUND
ORDER
UPON the application of Burgundy AssetManagement Limited ("Burgundy") in its own capacityand on behalf of Burgundy Balanced Pension Fund (the "PensionFund") and Burgundy Balanced Foundation Fund (the "FoundationFund") (together, the "Existing Funds") and suchother mutual funds (the "Future Funds") to be establishedand managed by Burgundy in the future and whose investment objectiveis to invest in other mutual funds (the Existing Funds and FutureFunds collectively, the "Top Funds") to the OntarioSecurities Commission (the "Commission") for orderspursuant to clause 113(a) and subsection 117(2) of the Act thatclauses 111(2)(b) and (c), subsection 111(3), and clause 117(1)(a)of the Act do not apply to the Top Funds or Burgundy as thecase may be, in connection with proposed investments by a TopFund directly in units of one or more Reference Funds as definedin paragraph 9 below;
AND UPON considering the applicationand the recommendation of the staff of the Commission;
AND UPON Burgundy having representedto the Commission as follows:
1. Burgundy is a corporation incorporatedunder the laws of Ontario and is or will be the promoter,advisor and manager of the Top Funds and the Reference Funds.
2. Each Top Fund is or will be an open-endpooled fund trust established by a Trust Agreement betweenBurgundy and Royal Trust Corporation. Units of each Top Fundwill be sold on a prospectus-exempt basis in Ontario pursuantto offering documents other than a prospectus, and will notbe a reporting issuer in Ontario. However, each Top Fund isa "mutual fund in Ontario" as defined in subsection1(1) of the Act.
3. The percentage of each Top Fund's net assetvalue ("NAV") that may be invested in a ReferenceFund is referred to as its target weighting ("TargetWeighting"). Each Top Fund's Target Weighting will beestablished in respect of each Reference Fund and will besubject to a plus or minus 2.5% deviation (the "PermittedRange") due solely to market fluctuation.
4. The investment objective of the FoundationFund will be to maximize total return through prudent, risk-controlledinvestments while generating a reliable yield. The FoundationFund will seek investments that are appropriate for relativelyunconstrained non-taxable investors (endowments and foundations).
5. The Foundation Fund will seek to achieveits investment objective by investing directly in units ofthe Reference Funds, and in Target Weightings, specified inparagraph 9 below. If, as a result of market movement, theFoundation Fund's investments in the specified Reference Fundsdeviate more than plus or minus 2.5% from the specified TargetWeightings, the investments will be re-balanced to their establishedTarget Weightings. The remaining assets will be invested inequity and fixed income securities directly.
6. The investment objective of the PensionFund will be to obtain significant long-term investment returnswith low risk of capital loss through prudent, risk-controlledinvestments while generating a reliable yield. The PensionFund will seek investments that are appropriate for institutionalpension fund clients with statements of investment policy& goals that require a weighting in bonds of about 35%.
7. The Pension Fund will seek to achieve itsinvestment objective by investing directly in units of theReference Funds, and in Target Weightings, specified in paragraph9 below. If, as a result of market movement, the Pension Fund'sinvestments in the specified Reference Funds deviate morethan plus or minus 2.5% from the specified Target Weightings,the investments will be re-balanced to their established TargetWeightings. The remaining assets will be invested in equitiesand fixed income securities directly.
8. Each Future Fund will seek to achieve itsinvestment objective by investing in the Reference Funds ina manner similar to that described in paragraphs 5 and 7 above.Each Future Fund's Target Weighting in respect of each ReferenceFund will be set out at the time of the establishment of theFuture Fund.
9. The Reference Funds and the Target Weightingfor each of the Existing Funds will be as follows:
Burgundy Balances Pension Fund
Reference Fund
Target Weighting
Burgundy European Equity Fund
6%
Burgundy Japan Fund
6%
Burgundy Bond Fund
35%
Burgundy Balanced Foundation Fund
Reference Fund
Target Weighting
Burgundy Smaller Companies Fund
3%
Burgundy European Foundation Fund
8%
Burgundy Japan Fund
8%
Burgundy Bond Fund
35%
10. The Burgundy Bond Fund (the "BondFund") is a mutual fund whose units are distributed tothe public pursuant to a simplified prospectus and annualinformation form accepted by the Director. The Bond Fund isa reporting issuer under the Act.
11. Where a Top Fund's Reference Fund or itsTarget Weighting in a Reference Fund is proposed to be changed,Burgundy will provide 60 days' prior notice to the unitholdersof the Top Fund and amend the offering documents of the TopFund.
12. There will be compatible dates for thecalculation of the net asset value of each Top Fund and itscorresponding Reference Funds for the purpose of the issueand redemption of units of such mutual funds.
13. Burgundy does not and will not chargeany management fee against the Top Funds or the ReferenceFunds. However, each client of Burgundy that invests in theTop Funds, the Reference Funds and other mutual funds managedby Burgundy enters into an agreement with Burgundy, underwhich Burgundy has full authority to manage the client's assets,and the client pays a fee to Burgundy directly in respectof all assets of the client under such management. As a result,no duplication of management fees can occur where a Top Fundinvests in a Reference Fund.
14. Because of the proposed investments bythe Top Funds in the Reference Funds as specified in paragraph9 above, each Top Fund would, either alone or together withthe other Top Funds, become a substantial security holderof each Reference Fund. Accordingly, each Top Fund is prohibitedby clause 111(2)(b) from making an investment in the ReferenceFunds unless the requested exemption is granted.
15. As manager of the Reference Funds, Burgundyacts or will act in a similar capacity as a trustee of theReference Funds. Accordingly, each of the Reference Fundsis or will be an associate of Burgundy. Also, Burgundy willhave an initial significant interest in each Future Fund atthe time of the establishment of the Future Fund. Accordingly,each Top Fund is or will be prohibited by clause 111(2)(c)from investing in the Reference Funds unless the requestedexemption is granted.
16. As manager of the Bond Fund, Burgundyis required by clause 117(1)(a) to file a report of each saleby the Bond Fund of its units to the Top Funds, unless therequested exemption is granted.
AND UPON the Commission being satisfiedfor the purpose of the order pursuant to clause 113(a) thatthe proposed investment by the Top Funds in the Reference Fundsrepresent the business judgment of responsible persons, uninfluencedby considerations other than the best interests of the Top Funds;
AND UPON the Commission being satisfiedfor the purpose of the order pursuant to subsection 117(2) ofthe Act that it would not be prejudicial to the public interestto do so;
IT IS ORDERED, pursuant to clause 113(a)of the Act, that investments by the Top Funds in units of theReference Funds are not subject to clauses 111 (2)(b) and (c)and subsection 111 (3) of the Act, provided that, at the timeeach Top Fund makes or holds, an investment in its ReferenceFunds,
(a) the investment by the Top Fund in oneor more Reference Funds is compatible with the investmentobjective of the Top Fund;
(b) the offering documents of the Top Funddisclose the intent of the Top Fund to invest in units ofone of more of the Reference Funds, the names of the ReferenceFunds, the Target Weightings in each of the Reference Funds,and the Permitted Ranges within which such Target Weightingmay vary;
(c) the investment objectives and investmentstrategies of the Top Fund discloses that the Top Fund investsa portion of its assets (exclusive of cash and cash equivalents)in units of one or more Reference Fund(s) in accordancewith established Target Weightings;
(d) the Reference Funds are not and willnot be mutual funds whose investment objective includesinvesting in other mutual funds;
(e) the Top Fund's holdings of units ofone or more Reference Funds do not deviate from the PermittedRanges;
(f) any deviation from the Target Weightingis caused by market fluctuations only;
(g) if an investment by the Top Fund inany Reference Fund has deviated from the Permitted Rangesas a result of market fluctuations, the Top Fund's investmentportfolio will be re-balanced to comply with the establishedTarget Weightings on the next day on which the net assetvalue is calculated following the deviation;
(h) if one or more of the Top Fund's ReferenceFunds or its Target Weighting in one or more Reference Fundsis going to be changed, Burgundy amends the offering documentsof the Top Fund and provides 60 days' prior notice of thechange to its unitholders;
(i) there are compatible dates for the calculationof the net asset value of the Top Fund and the ReferenceFunds for the purpose of the issue and redemption of theunits of such mutual funds;
(j) no sales charges are payable by theTop Fund in relation to its purchases of units of the ReferenceFunds;
(k) no redemption fees or other chargesare charged by a Reference Fund in respect of the redemptionby a Top Fund of units of the Reference Fund owned by theTop Fund;
(l) no fees or charges of any sort are paidby the Top Fund and the Reference Funds directly or indirectlyto anyone in respect of the purchase, holding or redemptionby the Top Fund of the units of the Reference Funds;
(m) the arrangements between or in respectof the Top Fund and the Reference Funds are such as to avoidthe duplication of management fees;
(n) any notice provided to unitholders ofa Reference Fund, as required by applicable laws or theconstating documents of the Reference Fund, has been deliveredby the Top Fund to its unitholders;
(o) all of the disclosure and notice materialprepared in connection with a meeting of unitholders ofa Reference Fund and received by the Top Fund has been providedto its unitholders, the unitholders have been permittedto direct a representative of the Top Fund to vote its holdingsin the Reference Fund in accordance with their direction,and the representative of the Top Fund has not voted itsholdings in the Reference Fund except to the extent theunitholders of the Top Fund have directed;
(p) the annual and the semi-annual financialstatements of the Top Fund will include appropriate summarydisclosure concerning the Top Fund's investment in the ReferenceFunds; and
(q) unitholders of the Top Fund may obtain,upon request, a copy of the annual and semi-annual financialstatements of the Reference Funds and the offering documentsof the Reference Funds; and
AND IT IS FURTHER ORDERED, pursuant tosubsection 117(2) of the Act, that Burgundy is not subject tothe reporting requirement of clause 117(1)(a) of the Act, inconnection with the sale by the Bond Fund of its units to theTop Funds; and
AND PROVIDED FURTHER THAT, in the caseof a Future Fund, Burgundy files on SEDAR a notice stating theFuture Fund's intention to rely on this order at least 30 daysprior to effecting any investment in one or more Reference Fundspursuant to this order.
October 29, 2002.
"Robert W. Korthals" "HaroldP. Hands"