Exemption Orders (Discretionary)
BALANCED GROWTH PORTFOLIO
2001 BCSECCOM 867
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from the substantial securityholder prohibition to permit certain funds to invest in a person who is a substantial securityholder of its distribution company.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(a), 130, 171
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, NOVA SCOTIA AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BALANCED GROWTH PORTFOLIO
BALANCED INCOME PORTFOLIO
LONG-TERM GROWTH PORTFOLIO
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the "Jurisdictions") has received an application (the "Application") from Frank Russell Canada Limited ("FRC") on behalf of Balanced Growth Portfolio, Balanced Income Portfolio and Long-term Growth Portfolio (the "Funds") for a decision (the "Decision") pursuant to the securities legislation of the Jurisdictions (the "Legislation") exempting the Funds from the provisions prohibiting a mutual fund from knowingly making and holding an investment in any person or company who is a substantial security holder of its distribution company (the "Investment Prohibition").
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this Application;
AND WHEREAS it has been represented by FRC to the Decision Makers that:
1. FRC is a corporation established under the laws of Canada with its head office in Toronto, Ontario. FRC is the manager and trustee of the Funds.
2. The sole shareholder of FRC is Frank Russell Company (the "Parent") who is registered as an investment adviser with the Securities Exchange Commission ("SEC") and the State of Washington, as a commodity trading adviser and commodity pool operator with the National Futures Association on behalf of the Commodity Futures Trading Commission, and as a Commodity Trading Manager - Non-Resident with the Ontario Securities Commission.
3. The Funds are open-ended investment trusts established under the laws of the Province of Ontario. Each Fund is a reporting issuer in each of the provinces and territories of Canada where Class B units (the "Units") of the Fund are sold pursuant to a prospectus accepted by the decision maker in such jurisdictions. Each Fund is not in default of any requirement of the Legislation.
4. The Funds invest in units of Russell Canadian Equity Fund, Russell Canadian Fixed Income Fund, Russell US Equity Fund and Russell Overseas Equity Fund (the "Underlying Funds") as disclosed in their prospectus. FRC is responsible for monitoring the Funds’ investments in the Underlying Funds and rebalancing the Funds’ weightings in the Underlying Funds as necessary.
5. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securities administrators pursuant to National Instrument 81-102, the investments by the Funds have been structured to comply with the investment restrictions of the Legislation and National Instrument 81-102.
6. Units of the Funds are offered for sale to investors by RBC Dominion Securities Inc. (the "Dealer"), as distributor under the terms of a distributorship agreement with FRC dated August 4, 2000.
7. The Dealer is a registered investment dealer and a member of The Toronto Stock Exchange (the "TSE").
8. The Dealer is a subsidiary of the Royal Bank of Canada ("RBC"), a publicly listed Canadian chartered bank.
9. In addition to the distributorship agreement with the Dealer, FRC intends to enter into distributorship agreements for the sale of Units of the Funds with other registered investment dealers that have a publicly traded company as a substantial security holder (upon entering into such agreement with FRC, such dealer is referred to as an "Other Dealer" and such substantial security holder as an "Other Listed ParentCo").
10. Although FRC is the adviser for the Underlying Funds, neither FRC nor the Parent engages in the stock selection for the Underlying Funds or purchases or sells securities for the Underlying Funds, except as described in paragraphs 11 and 12 below. It is the practice of FRC to appoint and monitor various sub-advisers (the "Portfolio Advisers") who have the discretion to make the stock selections for the Underlying Funds. Neither FRC nor the Parent influences the decisions of the Portfolio Advisers as to the purchase or sale of specific securities or securities of a specific issuer or class or group of issuers. With the exception of the Parent, the Portfolio Advisers are not affiliates or associates of FRC and act on an arm’s length basis with FRC.
11. Despite the statements in paragraph 10 above, FRC does provide advice respecting the purchase and sale of securities of the Underlying Funds with respect to Nortel Networks Corporation or any other issuer whose weighting exceeds 10% of the TSE Composite 300 Index. In addition, the Parent provides advice to the Funds and the Underlying Funds with respect to the purchase and sale of index future contracts (together the "FRC Investments").
12. If at any time a Portfolio Adviser of an Underlying Fund resigns or is removed, FRC may make the investment decisions for such Underlying Fund that are within the mandate of the former Portfolio Adviser until the earlier of:
(a) the date when FRC appoints a replacement Portfolio Adviser for the Underlying Fund; and
(b) 60 days from the resignation or removal of the former Portfolio Adviser.
13. By employing a combination of qualitative and quantitative measurements, FRC selects the Portfolio Advisers which it believes have consistent ability to achieve superior results within specific asset classes and investment styles.
14. Each Portfolio Adviser has complete discretion to purchase and sell securities for its segment of the portfolio of an Underlying Fund, subject only to the Underlying Fund's investment objective, policies and restrictions. The Underlying Funds currently hold securities of RBC and of issuers that may become an Other Listed ParentCo.
15. On August 10, 2000, the Funds obtained a decision (the “Previous Decision”) from the Jurisdictions permitting them to invest in the Underlying Funds and to knowingly make and hold an investment in a person or company who is a substantial security holder of the Dealer, subject to certain conditions. This allowed the Funds to invest in an Underlying Fund even if the Underlying Fund makes or holds an investment in RBC.
16. In the absence of this Decision, a Fund is prohibited by the Legislation from knowingly making and holding an investment in a person or company who is a substantial security holder of the Other Dealers. In the absence of this Decision, a Fund cannot invest in an Underlying Fund if the Underlying Fund makes or holds an investment in a person or company who is a substantial security holder of the Other Dealers.
17. The investment by the Funds in the Underlying Funds and the investment by the Underlying Funds in the securities of RBC or an Other Listed ParentCo (each an "Issuer") represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Funds or the Underlying Funds.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of each Decision Maker;
AND UPON each of the Decision Makers being 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 Investment Prohibition does not apply so as to prohibit the Funds, through their investment in the Underlying Funds, from knowingly making or holding an investment in an Issuer,
AND IT IS FURTHER DECIDED THAT the Previous Decision is varied by this Decision only as it relates to the investment by the Funds in an Underlying Fund that invests in securities of RBC,
PROVIDED THAT the Decision shall only apply if at the time a Fund makes or holds an investment in an Issuer the following conditions are satisfied:
(a) no affiliate or associate of the applicable Issuer acts as a Portfolio Adviser for the Underlying Fund with respect to such investment;
(b) no affiliate or associate of, or any person acting on a non-arm’s length basis with, the Dealer or Other Dealers acts as a Portfolio Adviser for the Underlying Fund with respect to such investment;
(c) FRC is not associated, affiliated or acting on a non-arm’s length basis with the Dealer or Other Dealers, or any of their respective affiliates or associates, with respect to such investment;
(d) the Portfolio Advisers are not associates or affiliates of FRC and act at arm’s length with FRC;
(e) none of FRC, the Parent or any of their respective affiliates, associates or substantial security holders in fact influences or has taken any action to influence any investment decision of a Portfolio Adviser (other than the Parent) of the Underlying Fund with respect to the purchase, sale or holding of any securities of an Issuer except for the FRC Investments;
(f) there is no agreement, arrangement or understanding in effect that would enable the Dealer or any Other Dealer, or their respective affiliates or associates, to influence any investment decision of any Portfolio Adviser of the Underlying Fund;
(g) none of FRC, the Parent or any of their respective affiliates, associates or substantial security holders makes or participates in making any investment decision with respect to the purchase, sale or holding by the Underlying Fund of any securities of an Issuer with the exception of:
(i) the FRC Investments; and
(ii) the investment decisions made by FRC for the Underlying Fund in the circumstances described in paragraph 12 above, except that no such decision shall involve the purchase of securities of an Issuer;
(h) the simplified prospectus of the Fund contains disclosure as to:
(i) all of the terms and conditions of this Decision;
(ii) the holdings of the Funds, through the Underlying Funds, and the aggregate yearly purchases or sales by the Underlying Funds of securities of any Issuer and that FRC has determined that such investments and holdings satisfy the conditions of this Decision;
(iii) the issuing of a press release when any change is made to a Portfolio Adviser;
(iv) the website where a current list of Portfolio Advisers can be obtained;
(v) the sending of quarterly updates to all unitholders which describe any Portfolio Adviser changes which have been made; and
(vi) the ability of unitholders to receive a current list of Portfolio Advisers upon request, including how such requests can be made; and
(i) the Fund files an amendment to its simplified prospectus within 10 days after a Portfolio Adviser is replaced by a new Portfolio Adviser or FRC hires an additional Portfolio Adviser, naming the replacement or additional Portfolio Adviser, if such new or additional Portfolio Adviser is an associate or affiliate of the Dealer or any Other Dealer.
DATED: August 16, 2001.
Paul Moore R. Stephen Paddon