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McLean Budden Limited - MRRS Decision
Headnote
Exemptions from the mutual fund self-dealingprohibitions of clauses 111(2)(a), 111(3) and 118(2)(a) of theSecurities Act (Ontario). Mutual funds allowed to make purchasesand sales of securities of Sun Life Financial Services of CanadaInc. and CI Fund Management Inc., related companies to the managerof the mutual funds, and to retain those securities providedthat a fund governance mechanism is used to oversee the holdings,purchases or sales of these securities for the mutual fundsand to ensure that such holdings, purchases or sales have beenmade free from any influence by Sun Life Financial Servicesof Canada Inc. or CI Fund Management Inc., and without takinginto account any consideration relevant to Sun Life FinancialServices of Canada Inc. or CI Fund Management Inc.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c. S.5,as am., 111(2)(a), 111(3) and 118(2)(a).
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, ONTARIO,
QUÉBEC, NOVA SCOTIAAND NEWFOUNDLAND AND LABRADOR
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
MCLEAN BUDDEN LIMITED ("McLeanBudden")
MCLEAN BUDDEN BALANCED GROWTHFUND
MCLEAN BUDDEN CANADIAN EQUITYGROWTH FUND
MCLEAN BUDDEN CANADIAN EQUITYVALUE FUND
MCLEAN BUDDEN GLOBAL EQUITYFUND
(collectively, "MB MutualFunds")
MB BALANCED GROWTH PENSIONFUND
MB CANADIAN EQUITY GROWTHFUND
MB GLOBAL EQUITY FUND
MB BALANCED GROWTH FUND
MB CANADIAN EQUITY PLUS FUND
MB PRIVATE BALANCED FUND
MB CANADIAN EQUITY FUND
MB BALANCED FUND
MB CANADIAN EQUITY VALUE FUND
MB SELECT BALANCED FUND
MB SELECT CANADIAN EQUITYFUND
MB SELECT GLOBAL EQUITY FUND
MB BALANCED VALUE FUND
MB GLOBAL EQUITY GROWTH FUND
MB GLOBAL EQUITY VALUE FUND
MB LIFEPLAN INCOME FUND
MB LIFEPLAN GROWTH AND INCOMEFUND
MB LIFPLAN GROWTH FUND
(collectively, "MB PooledFunds")
MRRS DECISION DOCUMENT
WHEREAS McLean Budden has made an applicationfor a decision (the "Decision") of the local securitiesregulatory authority or regulator (the "Decision Maker")in each of the provinces of British Columbia, Alberta, Saskatchewan,Ontario, Québec, Nova Scotia and Newfoundland and Labrador(the "Jurisdictions") pursuant to the securities legislationof the Jurisdictions (the "Legislation") that thefollowing provisions of the Legislation do not apply so as toprevent the MB Mutual Funds and, where applicable, the MB PooledFunds, or other mutual funds of which McLean Budden is or maybe the manager or portfolio adviser (individually, a "Fund",and, collectively, the "Funds") from investing in,or continuing to hold an investment in, securities of the SunLife Financial Services of Canada Inc. ("Sun Life")or in CI Fund Management Inc. ("CI"):
a. the provision prohibiting a mutual fundfrom knowingly making or holding an investment in any personor company who is a substantial security holder of the mutualfund, its management company or distribution company orin any person or company in which a substantial securityholder of the mutual fund, its management company or itsdistribution company has a significant interest; and
b. the provision prohibiting the portfoliomanager of an investment portfolio from causing the investmentportfolio or in British Columbia prohibiting a mutual fundor a responsible person from causing a mutual fund to investin an issuer in which a responsible person is a directoror an officer unless the specific fact is disclosed to theclient and the written consent of the client to the investmentis obtained before the purchase (the provisions of a. andb. being, collectively, the "Investment Restrictions");
AND WHEREAS the Investment Restrictionsdescribed in paragraph (a) above are applicable to the MB PooledFunds in the following Jurisdictions: Alberta, Ontario and Québecand the Investment Restrictions described in paragraph (b) aboveare applicable to the MB Pooled Funds in the following Jurisdictions:Alberta, Saskatchewan, Ontario, Québec, Nova Scotia andNewfoundland and Labrador.
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;
AND WHEREAS it has been represented byMcLean Budden to the Decision Makers that:
1. Each of the MB Mutual Funds is a mutualfund within the meaning of the Legislation and is a reportingissuer subject to National Instrument 81-102.
2. Each of the MB Mutual Funds is not in defaultunder the Legislation.
3. Each of the MB Pooled Funds is not a reportingissuer under the Legislation and is not subject to NationalInstrument 81-102.
4. McLean Budden is or will be the portfoliomanager of the Funds and is or will be the management companyof the Funds for purposes of the Legislation.
5. Securities of the Funds are or will beoffered in all the Jurisdictions.
6. McLean Budden is a 57 percent owned indirectsubsidiary of Sun Life and as a result Sun Life is a substantialsecurity holder of McLean Budden.
7. Sun Life has approximately an aggregate31.6 percent indirect ownership interest in CI through twoof Sun Life's wholly-owned subsidiaries, Sun Life AssuranceCompany of Canada and Clarica Life Insurance Company and asa result CI is an issuer in which a substantial security holderof McLean Budden has a significant interest.
8. Certain directors and/or officers of McLeanBudden who are responsible persons in respect of the Fundsare also directors and/or officers of Sun Life and CI; however,such individuals do not participate in the formulation of,or generally have access prior to implementation to, the dayto day investment decisions made on behalf of the Funds.
9. McLean Budden is prohibited by the InvestmentRestrictions from causing the investment portfolios of theFunds to invest in securities of Sun Life because:
(i) Sun Life is a substantial securityholder of the management company of the Funds; and
(ii) Certain directors of McLean Buddenare also directors and/or officers of Sun Life.
10. McLean Budden is prohibited by the InvestmentRestrictions from causing the investment portfolios of theFunds to invest in securities of CI because:
(i) CI is an issuer in which a substantialsecurity holder of the management company of the Fundshas a significant interest; and
(ii) certain directors of McLean Buddenare also directors and/or officers of CI.
11. For purposes of the requirement of section11.3(b) of Part B of Form 81-101 FI - Contents of SimplifiedProspectus - under National Instrument 81-101, the broad basedsecurities market index which is relevant to comparing theperformance of many of the MB Mutual Funds is the BMO/TSXComposite Cap 10% Index. This is also an index against whichthe performance of the MB Pooled Funds is measured.
12. The common shares of Sun Life and CI arerepresented in the BMO/TSX Composite Cap 10% Index in approximately2.9 percent and 0.3 percent respectively as at November 30,2002.
13. With a market capitalization of over $17billion Sun Life is currently the 8th largest companyin the publicly traded Canadian equity market. It is currentlythe second largest company in the insurance sector in Canada.CI is the second largest publicly traded mutual fund companyin the Canadian market and has a market capitalization ofover $1.7 billion.
14. The number of publicly traded mutual fundcompanies in Canada has been significantly reduced over thelast few years. CI represents one of the remaining opportunitiesfor the Funds to invest in this sector.
15. In the context of the Canadian capitalmarkets, the ability to invest in securities of Sun Life andCI is extremely important to the Funds. It is not prudentfor a portfolio manager to arbitrarily exclude securitiesof such issuers from the universe of securities availablefor investment.
16. McLean Budden considers that it wouldbe in the best interests of investors in the Funds if McLeanBudden were permitted to invest the portfolios of the Fundsin securities of Sun Life and/or CI where such investmentsare consistent with the investment objectives of the Funds.
17. McLean Budden has agreed to appoint anindependent committee (the "Independent Committee")to review the Funds' purchases, sales and continued holdingsof securities of Sun Life and CI to ensure that they havebeen made free from any influence by Sun Life or CI and withouttaking into account any consideration relevant to Sun Lifeand CI or any associate or affiliate of Sun Life or CI.
18. In reviewing the Funds' purchases, salesand continued holdings of securities of Sun Life and CI, theIndependent Committee will take into account the best interestsof the unitholders of the Funds and no other factors.
19. Compensation to be paid to members ofthe Independent Committee will be paid on a per meeting plusexpenses basis and will be allocated among the Funds in amanner that is considered by the Independent Committee tobe fair and reasonable to the Funds.
AND WHEREAS pursuant to the System thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the Jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that:
1. McLean Budden and the MB Mutual Funds areexempt from the Investment Restrictions so as to enable theMB Mutual Funds to invest, and continue to hold an investmentin, securities of Sun Life and CI;
2. McLean Budden and the MB Pooled Funds areexempt from the Investment Restrictions in each of the Jurisdictionsin which such Investment Restrictions are applicable to theMB Pooled Funds (as described in the recitals to this decision)so as to enable the MB Pooled Funds to invest, and continueto hold an investment in, securities of Sun Life and CI; and
3. the Decision, as it relates to the jurisdictionof a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that DecisionMaker dealing with mutual fund governance in a manner thatconflicts with or makes inapplicable any provision of thisDecision;
provided that:
a. McLean Budden has appointed the IndependentCommittee to review the Funds' purchases, sales and continuedholdings of securities of Sun Life and CI;
b. the Independent Committee has at leastthree members, none of whom is an employee, director, officeror associate of:
(i) Sun Life or CI;
(ii) McLean Budden or any other portfoliomanager of the Funds; or
(iii) any associate or affiliate of SunLife, CI, McLean Budden or any other portfolio managerof the Funds;
c. the Independent Committee has a writtenmandate describing its duties and standard of care which,at a minimum, sets out these conditions;
d. the members of the Independent Committeeexercise their powers and discharge their duties honestly,in good faith and in the best interests of investors inthe Funds and, in doing so, exercise the degree of care,diligence and skill that a reasonably prudent person wouldexercise in the circumstances;
e. none of the Funds relieves the membersof the Independent Committee from liability for loss thatarises out of a failure to satisfy the standard of careset out in paragraph (d);
f. none of the Funds indemnifies the membersof the Independent Committee against legal fees, judgementsand amounts paid in settlement as a result of a breach ofthe standard of care set out in paragraph (d);
g. none of the Funds incurs the cost ofany portion of liability insurance that insures a memberof the Independent Committee for a liability for loss thatarises out of a failure to satisfy the standard of careset out in paragraph (d);
h. the cost of any indemnification or insurancecoverage paid for by McLean Budden, any other portfoliomanager of the Funds, or any associate or affiliate of McLeanBudden or any other portfolio managers of the Funds to indemnifyor insure the members of the Independent Committee in respectof a loss that arises out of a failure to satisfy the standardof care set out in paragraph (d) is not paid either directlyor indirectly by the Funds;
i. the Independent Committee reviews theFunds' purchases, sales and continued holdings of securitiesof Sun Life and CI regularly, but not less frequently thanquarterly or such shorter period as the Independent Committeemay require;
j. the Independent Committee forms the opinionat any time, after reasonable inquiry, that the decisionsmade on behalf of each Fund by McLean Budden or the Fund'sportfolio manager to purchase, sell or continue to holdsecurities of Sun Life and CI were, and continue to be,in the best interests of the Fund and to:
(i) represent the business judgement ofMcLean Budden or the Fund's portfolio manager, uninfluencedby considerations other than the best interests of theFund;
(ii) have been made free from any influenceby Sun Life or CI and without taking into account anyconsideration relevant to Sun Life or CI or any associateor affiliate of Sun Life or CI; and
(iii) not exceed the limitations of theapplicable legislation;
k. the determination made by the IndependentCommittee pursuant to paragraph (j) above is included indetailed written minutes provided to McLean Budden not lessfrequently than quarterly;
l. the reports required to be filed pursuantto applicable legislation with respect to every purchaseand sale of securities of Sun Life and CI are filed on SEDARin respect of the relevant Fund;
m. the Independent Committee advises theDecision Makers in writing of:
(i) any determination by it that condition(j) has not been satisfied with respect to any purchase,sale or holding of securities of Sun Life or CI;
(ii) any determination by it that anyother condition of this Decision has not been satisfied;
(iii) any action it has taken or proposesto take following the determinations referred to above;and
(iv) any action taken, or proposed tobe taken, by Sun Life, CI, McLean Budden or a portfoliomanager of the Funds in response to the determinationsreferred to above;
n. the relationship between related partiesincluding the percentage of ownership will be the initialinformation stated followed thereafter with disclosure ofthe existence, purpose, duties and obligations of the IndependentCommittee, the names of its members, whether and how theyare compensated by the Funds, and the fact that they meetthe requirements of condition (b);
(A) in the case of the MB Mutual Funds,
(i) in a press release issued, and amaterial change report filed, prior to reliance on theDecision;
(ii) in item 12 of Part A of the simplifiedprospectus of the Funds; and
(iii) on McLean Budden's internet website;and
(B) in the case of the MB Pooled Funds,in a written notice mailed to each investor.
February 28, 2003.
"Robert Korthals" "RobertL. Shirriff"