Securities Law & Instruments

Headnote

Exemptions from the mutual fund self-dealingprohibitions of clauses 111(2)(a), 111(3) and 118(2)(a) of theSecurities Act (Ontario). Pooled funds allowed to make purchasesand sales of securities of UBS AG, parent company to the managersof the pooled 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 the UBS AG and without takinginto account any consideration relevant to the UBS AG.

Portfolio managers of certain third party mutualfunds granted relief from provision in securities legislationthat prohibits them from knowingly causing any investment portfoliomanaged by them to invest in any issuer in which a responsibleperson is an officer or director, subject to a number of conditions.

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, NOVASCOTIA AND

NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

UBS GLOBAL ASSET MANAGEMENT(CANADA) CO. ("UBS CANADA")

AND THE FUNDS LISTED ON SCHEDULEA (COLLECTIVELY, THE "UBS (CANADA) POOLED FUNDS")

 

MRRS DECISION DOCUMENT

WHEREAS UBS Canada 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 (i) the UBS (Canada) Pooled Funds, together with suchother funds as UBS Canada or its affiliates, UBS Global AssetManagement (Americas) Inc. or UBS Global Asset Management (UK)Inc. (either, an "Affiliate") may establish or managefrom time to time (together with the UBS (Canada) Pooled Funds,the "UBS Pooled Funds"), where applicable, from investingin, or continuing to hold an investment in, securities of UBSAG; or (ii) the UBS Pooled Funds and the third-party mutualfunds to which UBS Canada is or will be the portfolio advisoror sub-advisor, including those listed on Schedule B (the "MutualFunds", and together with the UBS Pooled Funds, being hereinafterreferred to individually as a "Fund" and collectivelyas the "Funds"), from investing in, or continuingto hold an investment in, securities of Manulife Financial Corporation("Manulife") or BP p.l.c. ("BP"):

(a) the provision of the Legislation prohibitinga mutual fund from knowingly making or holding an investmentin any person or company who is a substantial security holderof the mutual fund, its management company or distributioncompany; and

(b) the provision of the Legislation prohibitingthe portfolio manager of an investment portfolio from knowinglycausing an investment portfolio or in British Columbia prohibitinga mutual fund or a responsible person from causing a mutualfund to invest in an issuer in which a responsible personis a director or an officer unless the specific fact is disclosedto the client and the written consent of the client to theinvestment is obtained before the investment (the provisionsof (a) and (b) being, collectively, the "Investment Restrictions");

AND WHEREAS the Investment Restrictionsdescribed in paragraph (a) above are applicable to the UBS PooledFunds in the following Jurisdictions: Alberta, Ontario and Québecand the Investment Restrictions described in paragraph (b) aboveare applicable to the Funds in the following Jurisdictions:British Columbia, Alberta, Saskatchewan, Ontario, Québec,Nova Scotia and Newfoundland 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 byUBS Canada to the Decision Makers that:

1. The UBS (Canada) Pooled Funds currentlyconsist of a group of 29 mutual funds offered for sale inall provinces and territories of Canada. The UBS (Canada)Pooled Funds are not reporting issuers under the Legislation,nor are they subject to National Instrument 81-102 MutualFunds ("NI 81-102").

2. The Mutual Funds listed on Schedule B areoffered for sale in one or more of the provinces and territoriesof Canada and are subject to NI 81-102. These funds are reportingissuers in the Jurisdictions, except that the Evolution CanadianEquity Large Capitalization Fund is only a reporting issuerin Québec, and The Newport Canadian Equity Fund andThe Newport U.S. Equity Fund are not reporting issuers inQuébec, Nova Scotia or Newfoundland and Labrador. Additionalthird-party mutual funds for which UBS Canada may be appointedportfolio advisor or sub-advisor in future will also be offeredfor sale in one or more of the provinces and territories ofCanada and will be subject to NI 81-102.

3. UBS Canada, a Nova Scotia unlimited liabilitycompany, is registered as an investment counsel and portfoliomanager in all of the Jurisdictions, and as a limited marketdealer in Ontario and Newfoundland and Labrador.

4. UBS Canada is or will be the "managementcompany" of the UBS Pooled Funds within the meaning ofthe Legislation.

5. UBS Canada is a 100% indirect wholly-ownedsubsidiary of UBS AG, and as a result UBS AG is a substantialsecurity holder of UBS Canada within the meaning of the Legislation,except in the Province of Québec.

6. UBS Canada is or will be the "portfoliomanager" of the Funds for purposes of the Legislation.UBS Canada and each of its directors and officers is a "responsibleperson" within the meaning of the Legislation in respectof the investment portfolio of the Funds.

7. A director and officer of UBS Canada whois a responsible person in respect of the Funds is also adirector of Manulife and BP. Such individual does not participatein the formulation of, or generally have access prior to implementationto, the day to day investment decisions made on behalf ofthe Funds.

8. UBS Canada is prohibited by the InvestmentRestrictions from causing the investment portfolios of theUBS Pooled Funds to knowingly invest in or hold securitiesof UBS AG because UBS AG is a substantial security holderof the management company of the UBS Pooled Funds.

9. UBS Canada is prohibited by the InvestmentRestrictions from causing the investment portfolios of theFunds to knowingly invest in securities of Manulife or BPwithout prior written consent of all clients because a responsibleperson of UBS Canada is a director of Manulife and BP.

10. The Funds do not currently hold any investmentin securities of UBS AG. Some of the Funds purchased commonshares of Manulife and of BP prior to the appointment of theresponsible person to UBS Canada, and those Funds continueto hold those investments. Common shares of Manulife representedapproximately 1.3% of the total assets of the UBS (Canada)Canadian Equity Fund and 0.6% of the total assets of the UBS(Canada) Canadian Equity Capped Fund as at March 31, 2003.Common shares of BP represented approximately 1.9% of theUBS (Canada) International Equity Fund, 1.8% of the UBS (Canada)Global Large Cap Equity Fund, and 2.5% of the UBS (Canada)International Large Cap Equity Fund as at March 31, 2003.No additional investments in securities of Manulife or BPhave been made by the Funds since the Investment Restrictionswere applicable to the Funds.

11. The broad based securities market indexwhich are relevant to comparing the performance of many ofthe Funds is the S&P/TSX Index in the case of the Canadianequity funds and the MSCI World Free Index and the EAFE MSCIIndex in the case of the global and international equity funds.

12. Ordinary shares of UBS AG are listed onthe SWX Swiss Exchange, the New York Stock Exchange and theTokyo Stock Exchange. The shares of UBS AG represented approximately0.47% of the MSCI World Free Index, and 1.15% of the EAFEMSCI Index as at May 5, 2003.

13. The common shares of Manulife are listedon the Toronto Stock Exchange, the New York Stock Exchange,The Stock Exchange of Hong Kong and the Philippine Stock Exchange.The common shares of Manulife represented approximately 2.90%of the S&P/TSX Index as at April 30, 2003.

14. BP's ordinary shares trade on stock exchangesin England, France, Germany, Japan and Switzerland. AmericanDepository Securities of BP are listed on the New York StockExchange, the Chicago Stock Exchange, the Pacific Stock Exchangeand the Toronto Stock Exchange. The equity securities of BPrepresented approximately 1.13% of the MSCI World Free Indexand 2.72% of the EAFE MSCI Index as at May 5, 2003.

15. Where such investments are consistentwith their investment objectives, the ability to invest insecurities of UBS AG for the UBS Pooled Funds, and in securitiesof Manulife and BP for the Funds is important to the Funds.UBS Canada does not believe it is prudent for a portfoliomanager to exclude securities of UBS AG, Manulife or BP fromthe securities available for investment.

16. As a result of the Investment Restrictions,the Funds, and therefore the unitholders of the Funds, maybe prejudiced, as those Funds for which such investments areappropriate may not be fully able to carry out their investmentstrategies.

17. UBS Canada considers it would be in thebest interest of unitholders of the Funds if UBS Canada werepermitted to invest the portfolio of the UBS Pooled Fundsin securities of UBS AG, and the portfolio of the Funds insecurities of Manulife and BP, where such investments areconsistent with the investment objectives of the Funds.

18. UBS Canada will appoint an independentcommittee (the "Independent Committee") to reviewthe UBS Pooled Funds' purchases, sales and continued holdingsof securities of UBS AG, Manulife and BP.

19. The Independent Committee will have atleast three members, and no member of the Independent Committeewill be an employee, director, officer or associate of:

(a) UBS Canada, UBS AG, Manulife, BP orany other portfolio manager of the UBS Pooled Funds; or

(b) any associate or affiliate of UBS Canada,UBS AG, Manulife, BP or any other portfolio manager of theUBS Pooled Funds.

20. The Independent Committee will have awritten mandate describing its duties and standard of carewhich, at a minimum, sets out these conditions.

21. The members of the Independent Committeewill exercise their powers and discharge their duties honestly,in good faith, and in the best interests of investors in theUBS Pooled Funds and, in so doing, exercise the degree ofcare, diligence and skill that a reasonably prudent personwould exercise in the circumstances.

22. Compensation to be paid to members ofthe Independent Committee will be paid on a per meeting plusexpense basis and will be allocated among the UBS Pooled Fundsin a manner that is considered by the Independent Committeeto be fair and reasonable to the UBS Pooled 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. UBS Canada, its Affiliates and the UBSPooled Funds are exempt from the Investment Restrictions soas to enable the UBS Pooled Funds to invest, and continueto hold an investment in, securities of UBS AG;

2. UBS Canada and its Affiliates are exemptfrom the Investment Restrictions so as to enable the Fundsto invest, and continue to hold an investment in, securitiesof Manulife and BP; 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) UBS Canada has appointed an IndependentCommittee to review the UBS Pooled Funds' purchases, salesand continued holdings of securities of UBS AG, Manulife andBP;

(b) the Independent Committee has at leastthree members, and no member of the Independent Committeeis an employee, director, officer or associate of:

(i) UBS Canada, UBS AG, Manulife, BP orany other portfolio manager of the UBS Pooled Funds; or

(ii) any associate or affiliate of UBS Canada,UBS AG, Manulife, BP or any other portfolio manager of theUBS Pooled 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 in theUBS Pooled Funds and, in so doing, exercise the degree ofcare, diligence and skill that a reasonably prudent personwould exercise in the circumstances;

(e) none of the UBS Pooled Funds relievesthe members of the Independent Committee from liability forloss that arises out of a failure to satisfy the standardof care set out in paragraph (d) above;

(f) none of the UBS Pooled Funds indemnifiesthe members of the Independent Committee against legal fees,judgments and amounts paid in settlement as a result of abreach of the standard of care set out in paragraph (d) above;

(g) none of the UBS Pooled Funds incurs thecost of any portion of liability insurance that insures amember of the Independent Committee for a liability for lossthat arises out of a failure to satisfy the standard of careset out in paragraph (d) above;

(h) the cost of any indemnification or insurancecoverage paid for by UBS Canada, any portfolio manager ofthe UBS Pooled Funds, or any associate or affiliate of UBSCanada or any portfolio managers of the UBS Pooled Funds toindemnify or insure the members of the Independent Committeein respect of a loss that arises out of a failure to satisfythe standard of care set out in paragraph (d) above is notpaid either directly or indirectly by the UBS Pooled Funds;

(i) the Independent Committee reviews theUBS Pooled Funds' purchases, sales and continued holdingsof securities of UBS AG, Manulife and BP regularly, but notless frequently than quarterly or such shorter period as theIndependent Committee may require;

(j) the Independent Committee forms the opinion,at any time, after reasonable inquiry that the decisions madeon behalf of each UBS Pooled Fund by UBS Canada or the UBSPooled Fund's portfolio manager to purchase, sell or continueto hold securities of UBS AG, Manulife or BP were, and continueto be, in the best interests of the UBS Pooled Fund and to:

(i) represent the business judgment of UBSCanada or the UBS Pooled Fund's portfolio manager, uninfluencedby considerations other than the best interests of the UBSPooled Fund;

(ii) have been made free from any influenceof UBS AG, Manulife or BP and without taking into accountany consideration relevant to UBS AG, Manulife or BP; and

(iii) not exceed the limitations of theapplicable legislation;

(k) the determination made by the IndependentCommittee as described in paragraph (j) above is includedin detailed written minutes provided to UBS Canada not lessfrequently than quarterly;

(l) the reports required to be filed pursuantto applicable legislation with respect to every purchase andsale of securities of UBS AG, Manulife and BP are filed onSEDAR in respect of the relevant Fund;

(m) the Independent Committee advises theapplicable Decision Maker in writing of:

(i) any determination by it that the conditionin paragraph (j) above has not been satisfied with respectto any purchase, sale or holding of securities of UBS AG,Manulife or BP;

(ii) any determination by it that any othercondition 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 to betaken, by UBS Canada or a portfolio manager of the UBS PooledFunds in response to the determinations referred to above;

(n) with respect to the UBS Pooled Funds only,the relationship between related parties including the percentageof ownership, where applicable, will be the initial informationstated, followed thereafter with disclosure of the existence,purpose, duties and obligations of the Independent Committee,the names of its members, whether and how they are compensatedby the UBS Pooled Funds, and the fact that they meet the requirementsof condition (b) above:

(i) on UBS Canada's internet website; and

(ii) in a written notice mailed to eachinvestor.

(o) with respect to the Mutual Funds (butonly those Mutual Funds that will make an investment otherwiserestricted by the Investment Restrictions), disclosure ofthe existence of this Decision and the consequent abilityof the Mutual Funds to invest in securities of Manulife and/orBP, as applicable, will be made:

(i) in a press release issued, and a materialchange report filed, prior to reliance on the Decision;

(ii) in item 12 Part A of the simplifiedprospectus of the applicable Mutual Fund, on the earlierof:

(1) the filing of an amendment in thenormal course to the simplified prospectus and annualinformation form of the Fund after the date of this Decision;and

(2) the time of filing of the pro formasimplified prospectus and annual information form of theFund after the date of this Decision; and

(iii) on UBS Canada's internet website.

September 29, 2003.

"Robert W. Davis"
"Paul M. Moore"

 

SCHEDULE A

UBS (CANADA) POOLED FUNDS
UBS (CANADA) AMERICAN EQUITY FUND
UBS (CANADA) BALANCED (CAPPED) FUND
UBS (CANADA) BALANCED FUND
UBS (CANADA) BBB CORPORATE BOND FUND
UBS (CANADA) BOND FUND
UBS (CANADA) CANADA PLUS EQUITY FUND
UBS (CANADA) CANADIAN EQUITY (CAPPED) FUND
UBS (CANADA) CANADIAN EQUITY FUND
UBS (CANADA) CASH IN ACTION FUND
UBS (CANADA) CASH MANAGEMENT FUND
UBS (CANADA) DIVERSIFIED FUND
UBS (CANADA) EMERGING MARKETS EQUITY FUND
UBS (CANADA) EMERGING TECHNOLOGIES FUND
UBS (CANADA) GLOBAL BOND FUND - (CAD)
UBS (CANADA) GLOBAL EQUITY FUND
UBS (CANADA) GLOBAL LARGE CAP EQUITY FUND
UBS (CANADA) GLOBAL LARGE CAP EQUITY WITHCASH FUND
UBS (CANADA) GOVERNMENT OF CANADA MONEYMARKET FUND
UBS (CANADA) INDEXED BOND FUND SERIES A
UBS (CANADA) INTERNATIONAL EQUITY FUND
UBS (CANADA) INTERNATIONAL LARGE CAP EQUITYFUND
UBS (CANADA) LONG TERM BOND FUND
UBS (CANADA) MONEY MARKET FUND
UBS (CANADA) QUEBEC SMALL CAP FUND
UBS (CANADA) SHORT TERM BOND FUND
UBS (CANADA) SMALL CAPITALIZATION FUND
UBS (CANADA) U.S. $ CASH MANAGEMENT SERIESA
UBS (CANADA) U.S. EQUITY FUND
UBS (CANADA) U.S. LARGE/MID CAP EQUITYFUND

 

SCHEDULE B

THIRD-PARTY MUTUAL FUNDS

CLARICA CANADIAN SMALL/MID CAP FUND
EVOLUTION CANADIAN EQUITY LARGE CAPITALIZATIONFUND
MACKENZIE UNIVERSAL FINANCIAL SERVICESCAPITAL CLASS
PINNACLE SHORT TERM INCOME FUND
TD INTERNATIONAL EQUITY FUND
THE NEWPORT CANADIAN EQUITY FUND
THE NEWPORT U.S. EQUITY FUND
WORKING VENTURES CANADIAN FUND INC.
WORKING VENTURES OPPORTUNITY FUND INC.