United Financial Corporation and Global Fixed Income Corporate Class - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- exemption from subsection 2.1(1) of National Instrument 81-102 Mutual Funds to permit global bond fund to invest more than 10% of its net assets in debt securities issued by a foreign government or supranational agency.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 2.1(2), 19.1.

September 28, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, YUKON AND NUNAVUT

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

UNITED FINANCIAL CORPORATION

(the Filer)

AND

IN THE MATTER OF

THE GLOBAL FIXED INCOME CORPORATE CLASS

(the Fund)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) granting an exemption from the requirement in paragraph 2.1(1) of National Instrument 81-102 -- Mutual Funds (NI 81-102) which prohibits a mutual fund from investing more than 10% of the net assets of the fund, taken at market value at the time of the transaction, in securities of any issuer (the Concentration Restriction), to permit the Fund to invest up to:

(a) 20 percent of the Fund's net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed as to principal and interest, by supranational agencies or governments, other than the government of Canada, the government of a Jurisdiction or the government of the United States of America, and are rated AA by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations; and

(b) 35 percent of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a Jurisdiction, or the government of the United States of America and are rated AAA by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations.

Paragraphs (a) and (b) are herein referred to as the Requested Relief.

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in NI 81-102 or National Instrument 14-101 -- Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is registered under the Securities Act in Ontario as an advisor in the categories of investment counsel and portfolio manager and holds equivalent registrations under the securities laws of each of the other Jurisdictions.

2. A preliminary simplified prospectus and annual information form for the Fund, of which the Filer will be the manager, was filed by SEDAR in all the Jurisdictions on September 4, 2007. Upon the distribution of securities of the Fund pursuant to its (final) simplified prospectus and annual information form, the Fund will be a mutual fund to which NI 81-102 applies.

3. The investment objective of the Fund will be to provide income and long-term capital growth primarily through investments in high quality debt and securities of or guaranteed by governments, governmental agencies, other governmental entities and supranational agencies in a variety of countries throughout the world and denominated in the currencies of such countries. The Fund will also invest in high quality publicly-traded debt securities, denominated in foreign currencies, of major corporations throughout the world and may also invest in other mutual funds.

4. The Concentration Restriction prevents the Fund from purchasing a security of an issuer or entering into a specified derivatives transaction if, immediately after the transaction, more than 10 percent of the net assets of the Fund would be invested in securities of any single issuer.

5. The Concentration Restriction does not apply to a purchase of a "government security", which, under NI 81-102, means an evidence of indebtedness issued, or fully and unconditionally guaranteed as to principal and interest, by any of the government of Canada, the government of a Jurisdiction or the government of the United States of America.

6. The Filer has determined that it would be in the best interests of the Fund if, in pursuing the Fund's investment objective, the Filer was not constrained by the Concentration Restriction with respect to investments in securities issued by foreign governments or supranational agencies with appropriate credit ratings. This would provide the Fund with more flexibility and more favourable prospects as it will be better able to compose a global portfolio that will best achieve the Fund's investment objectives.

7. The Fund would like to invest more than 10 percent of its net assets in securities of any single issuer. An exemption from the Concentration Restriction will enable the Fund to increase its exposure to securities issued by other developed countries.

8. In certain jurisdictions, the securities of supranational agencies or governments may be the only liquid or rated debts available for investment.

9. Permitting the Fund to invest more than 10 percent of its assets in any one issuer may help increase efficiencies and economies of scale that would result in reduced transaction costs for the Fund.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

(a) paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;

(b) the securities that are purchased pursuant to this Decision are traded on a mature and liquid market;

(c) the acquisition of the securities purchased pursuant to this Decision is consistent with the fundamental investment objective of the Fund;

(d) the simplified prospectus of the Fund discloses the additional risks associated with the potential concentration of the net assets of the Fund in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Fund has so invested and the risks, including foreign exchange risks, of and the risks associated with investing in the countries in which such issuers may be located; and

(e) the simplified prospectus of the Fund discloses, in the investment strategy section, the details of the Requested Relief above along with the conditions imposed and the type of securities covered by this Decision.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission