Exemption Orders (Discretionary)
ELLIOTT & PAGE LIMITED
2001 BCSECCOM 862
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – relief from certain of the self-dealing prohibitions and reporting requirements and in respect of entering into forward contracts with a related counterparty in connection with an RSP fund in securities of other mutual funds that are under common management for specified purposes, subject to certain conditions.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(a), 121(2)(b), 123, 126(a), 127(1)(a) and 130
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA,
SASKATCHEWAN, ONTARIO, QUEBEC, NOVA SCOTIA AND NEWFOUNDLAND
AND
IN THE MATTER OFTHE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF ELLIOTT & PAGE LIMITED AND E&P MANULIFE MAXIMUM GROWTH ASSET ALLOCATION PORTFOLIO
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of British Columbia, Alberta, Saskatchewan, Ontario, Quebec, Nova Scotia and Newfoundland (the "Jurisdictions") has received an application from Elliott & Page Limited ("EPL"), as manager and trustee of E&P Manulife Maximum Growth Asset Allocation Portfolio (the "Top Fund") for a decision by each Decision Maker (collectively, the "Decision") under the securities legislation of the Jurisdictions (the "Legislation") that:
i. the requirements contained in the Legislation requiring the management company, or in British Columbia, a mutual fund manager, to file a report relating to the purchase or sale of securities between the mutual fund and any related person or company, or any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, the mutual fund is a joint participant with one or more of its related persons or companies, shall not apply in respect of investments by the Top Fund in the Underlying Funds (defined herein) or in forward contract transactions (“Forward Contracts”) with Manulife Financial (Manulife Financial and/or its affiliates being hereinafter referred to as “Manulife”), as counterparty;
ii. the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making and holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder shall not apply in respect of investments by the Top Fund in the Underlying Funds;
iii. the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making and holding an investment in an issuer in which any person or company who is a substantial security holder of the mutual fund, its management company or distribution company has a significant interest shall not apply in respect of investments by the Top Fund in the Forward Contracts; and
iv. the restrictions contained in the Legislation prohibiting a portfolio manager, or in British Columbia, the mutual fund, from knowingly causing an investment portfolio managed by it to invest in any issuer in which a "responsible person" (as that term is defined in the Legislation) is an officer or director, unless the specific fact is disclosed to the client and, if applicable, the written consent of the client to the investment is obtained before the purchase shall not apply in respect of investments by the Top Fund in the Forward Contracts.
The above requirements and restrictions contained in the Legislation herein collectively referred to as the “Applicable Requirements”.
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS EPL has represented to the Decision Makers as follows:
1. EPL is a corporation established under the laws of Ontario and its head office and registered office are located in the Province of Ontario. EPL is or will be the manager, trustee and promoter of the Top Fund and the Underlying Funds (collectively, the "Funds").
2. The Funds are or will be open-end mutual fund trusts established under the laws of Ontario. The Funds are or will be qualified under a simplified prospectus and annual information form filed in all provinces and territories of Canada.
3. Each of the Funds is or will be a reporting issuer under the Legislation of each of the provinces and territories of Canada (other than those jurisdictions which do not recognize reporting issuers).
4. EPL is the manager, trustee and promoter of the following mutual funds: Elliott & Page Money Fund, Elliott & Page Active Bond Fund, Elliott & Page Value Equity Fund, E&P Cabot Canadian Equity Fund, E&P Cabot Global MultiStyle Fund and Elliott & Page U.S. Mid-Cap Fund (collectively, the “Existing Underlying Funds”). EPL may in the future establish other mutual funds (the “Future Underlying Funds” and collectively with the Existing Underlying Funds, the “Underlying Funds”).
5. The Top Fund seeks to achieve its investment objective while ensuring that its securities do not constitute “foreign property” for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and similar plans (“Registered Plans”).
6. To achieve its investment objective, the Top Fund will invest its assets in securities such that its units will be “qualified investments” for Registered Plans and will not constitute foreign property in a Registered Plan.
7. As part of its investment objective, the Top Fund will invest an aggregate specified percentage (the “Fixed Percentages”) of its assets directly and indirectly (through derivative exposure) in specified Underlying Funds, subject to a variation of 2.5% above or below the Fixed Percentages (the “Permitted Ranges”) to account for market fluctuations. The Top Fund’s total direct investments in the Underlying Funds which constitute foreign property in a Registered Plan will at all times be at or below the maximum foreign property limit under the Income Tax Act (Canada) for Registered Plans (the “Permitted Limit”). The balance of the assets of the Top Fund not invested in the Underlying Funds will be allocated among one or more portfolio sub-advisers.
8. The aggregate of derivative exposure to, and direct investment in, the Underlying Funds, will equal 70% (the “Permitted Aggregate Investment”) of the assets of the Top Fund, subject to a variation to account for market fluctuations as described in paragraph 7.
9. The Top Fund will invest its assets in accordance with the Permitted Aggregate Investment and the Fixed Percentages disclosed in the simplified prospectus of the Top Fund.
10. The Top Fund will not invest in an Underlying Fund with an investment objective which includes investing directly or indirectly in other mutual funds.
11. The Top Fund will enter into Forward Contracts based on the returns of an Underlying Fund with one or more financial institutions (each a "Counterparty").
12. In order to hedge their obligations under the Forward Contracts, the Counterparties may purchase securities of an Underlying Fund.
13. Manulife, a financial institution which owns 100% of EPL, or an affiliate of Manulife, (each a “Related Counterparty”) may be a Counterparty.
14. There may be directors and/or officers of EPL and its affiliates that are also directors and/or officers of Manulife and its affiliates.
15. Except for the transaction costs payable to a Related Counterparty in relation to any forward contracts with a Related Counterparty, none of the Top Fund, the Underlying Funds, EPL or any affiliate or associate of any of the foregoing will pay any fees or charges of any kind to any other related party in respect of a trade in such Forward Contracts.
16. The simplified prospectus of the Top Fund will disclose the involvement of Related Counterparties acting as Counterparty as well as all applicable charges in connection with any Forward Contracts with a Related Counterparty.
17. Except as otherwise described herein, to the extent evidenced by a Decision granted pursuant to this application, as well as specific approval granted by the Canadian Securities Authorities pursuant to National Instrument NI 81-102 (the "NI 81-102"), any investment by the Top Fund in Forward Contracts with a Related Counterparty has been or will be structured to comply with the investment restrictions of the Legislation and NI 81-102.
18. In the absence of this Decision, the Top Fund is prohibited from knowingly making and holding an investment in the Underlying Funds in which the Top Fund alone or together with one or more related mutual funds is a substantial securityholder.
19. In the absence of this Decision, the Top Fund is prohibited from knowingly making and holding an investment in securities of Manulife.
20. In the absence of this Decision, EPL is required to file a report on every purchase or sale of securities of the Underlying Funds by the Top Fund.
21. In the absence of this decision, EPL is required to file a report on every purchase or sale of securities of Manulife.
22. In the absence of this Decision, the portfolio manager, or mutual fund, is prohibited from causing the Top Fund to invest its assets in securities of Manulife unless the specific fact is disclosed to investors and, if applicable, the written consent of investors is obtained before the purchase.
23. The Top Fund’s investment in, or redemption of, securities of the Underlying Funds and/or investment in Forward Contracts with a Related Counterparty represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Top Fund.
AND WHEREAS pursuant to the System, this Decision Document evidences the Decision of each Decision Maker:
AND WHEREAS each Decision Maker 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 pursuant to the Legislation is that the Applicable Requirements shall not apply so as to prevent the Top Fund from making or holding an investment in units of the Underlying Funds, or investing in Forward Contracts issued by a Related Counterparty, or so as to require EPL to file a report relating to the purchase or sale os such securities;
PROVIDED THAT IN RESPECT OF the investment by the Top Fund in units of the Underlying Funds:
1) the Decision, as it relates to the jurisdiction of the Decision Maker, will terminate one year after the publication in 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 apply only if, at the time a Top Fund makes or holds an investment in its Underlying Funds, the following conditions are satisfied:
(a) the units of both the Top Fund and the Underlying Funds are being offered for sale in the jurisdiction of each Decision Maker pursuant to a simplified prospectus and annual information form which has been filed with and accepted by the Decision Maker;
(b) the investment by the Top Fund in the Underlying Funds is compatible with the fundamental investment objectives of the Top Fund;
(c) the simplified prospectus of the Top Fund discloses the intent of the Top Fund to invest directly and indirectly (through derivative exposure) in the Underlying Funds, the names of the Underlying Funds, the Fixed Percentages and the Permitted Ranges within which such Fixed Percentages may vary;
(d) the investment objective of the Top Fund discloses that the Top Fund invests directly and indirectly (through derivative exposure) in other mutual funds, the Permitted Aggregate Investment, the Top Fund’s maximum direct and indirect exposure to foreign content, and that the Top Fund is eligible for Registered Plans;
(e) the Underlying Funds are not mutual funds whose investment objective includes investing directly or indirectly in other mutual funds;
(f) the Top Fund restricts its direct investment in the Underlying Funds which constitute foreign property in Registered Plans to a percentage of its assets that is within the Permitted Limit;
(g) the Top Fund invests its assets directly and indirectly (through derivative exposure) in the Underlying Funds in accordance with the Permitted Aggregate Investment and the Fixed Percentages disclosed in the simplified prospectus of the Top Fund;
(h) the Top Fund’s derivative exposure to, and direct investment in, the Underlying Funds does not deviate from the Permitted Ranges;
(i) any deviation from the Fixed Percentages is caused by market fluctuations only;
(j) if a direct or indirect investment by the Top Fund in any of the Underlying Funds has deviated from the Permitted Ranges as a result of market fluctuations, the Top Fund’s investment portfolio was re-balanced to comply with the Fixed Percentages on the next day on which the net asset value was calculated following the deviation;
(k) if the Fixed Percentages and the Underlying Funds which are disclosed in the simplified prospectus have been changed, either the simplified prospectus has been amended or a new simplified prospectus filed to reflect the change, and the security holders of the Top Fund have been given at least 60 days’ notice of the change;
(l) there are compatible dates for the calculation of the net asset value of the Top Fund and the Underlying Funds for the purpose of the issue and redemption of securities of such mutual funds;
(m) no sales charges are payable by the Top Fund in relation to its purchase of units of the Underlying Funds;
(n) no redemption fees or other charges are charged by an Underlying Fund in respect of the redemption by the Top Fund of units of the Underlying Fund owned by the Top Fund;
(o) no fees or charges of any sort are paid by the Top Fund and the Underlying Funds, by their respective managers or principal distributors, or by any affiliate or associate of any of the foregoing entities, to anyone in respect of the Top Fund’s purchase, holding or redemption of the units of the Underlying Funds;
(p) the arrangements between or in respect of the Top Fund and the Underlying Funds are such as to avoid the duplication of management fees;
(q) any notice provided to securityholders of an Underlying Fund as required by applicable laws or the constating documents of that Underlying Fund, has been delivered by the Top Fund to its security holders;
(r) all of the disclosure and notice material prepared in connection with a meeting of securityholders of the Underlying Funds and received by the Top Fund has been provided to its securityholders, the security holders have been permitted to direct a representative of the Top Fund to vote its holdings in the Underlying Fund in accordance with their direction, and the representative of the Top Fund has not voted its holdings in the Underlying Funds except to the extent the securityholders of the Top Fund have directed;
(s) in addition to receiving the annual and, upon request, the semi-annual financial statements, of the Top Fund, securityholders of the Top Fund have received appropriate summary disclosure in respect of the Top Fund’s holdings of units of the Underlying Funds in the financial statements of the Top Fund; and
(t) to the extent that the Top Fund and the Underlying Funds do not use a combined simplified prospectus and annual information form containing disclosure about the Top Fund and the Underlying Funds, copies of the simplified prospectus and annual information form of the Underlying Funds have been provided upon request to securityholders of the Top Fund and this right is disclosed in the simplified prospectus of the Top Fund.
AND PROVIDED THAT IN RESPECT OF the investment by the Top Fund in Forward Contracts:
3) The Decision shall only apply if, at the time the Top Fund makes an investment in Forward Contracts of Manulife, the following conditions are satisfied:
(a) the pricing terms offered by the Related Counterparties to the Top Fund under the Forward Contracts are at least as favourable as the terms committed by the Related Conterparties to other third parties, which are of similar size as the Top Fund;
(b) prior to the Top Fund entering into a Forward Contract with a Related Counterparty, the independent auditors of the Top Fund have reviewed the pricing offered by the Related Counterparty to the Top Fund against the pricing offered by the Related Counterparty to other fund groups offering top funds of similar size, to ensure that the pricing is at least as favourable;
(c) the review by the independent auditors has been undertaken not less frequently than on a quarterly basis and, in addition, on every renewal or pricing amendment to each Forward Contract, during the term of such contract;
(d) the Top Fund’s simplified prospectus discloses the independent auditors' role and their review of the Forward Contracts, as well as the involvement of the Related Counterparties; and
(e) the Top Fund will enter into Forward Contracts with Related Counterparties only once confirmation of favourable pricing is received from the independent auditors of the Top Fund.
DATED August 24, 2001
Paul M. Moore R. Stephen Paddon