Exemption Orders (Discretionary)
MAXXUM FUND MANAGEMENT INC.
2001 BCSECCOM 136
Headnote
Mutual Reliance System for Exemptive Relief Applications – relief granted from certain mutual fund self dealing restrictions contained in the Legislation in order to permit top funds to invest in selected mutual funds under common management, subject to certain conditions. Relief also granted from certain provisions of National Instrument 81-102 Mutual Funds.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, s. 123, 130
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, QUEBEC, NEW BRUNSWICK, PRINCE EDWARD ISLAND, NOVA SCOTIA, NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF MAXXUM FUND MANAGEMENT INC.
AND
CONSERVATIVE FOLIO FUND
MODERATE FOLIO FUND
BALANCED FOLIO FUND
ADVANCED FOLIO FUND
AGGRESSIVE FOLIO FUND
FIXED INCOME FOLIO FUND
CANADIAN EQUITY FOLIO FUND
GLOBAL EQUITY FOLIO FUND
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the “Decision Maker”) in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario, Quebec, New Brunswick, Nova Scotia, Newfoundland and Prince Edward Island (the “Jurisdictions”) has received an application (the “Application”) from Maxxum Fund Management Inc. (“MFMI”), in its own capacity and on behalf of Conservative Folio Fund, Moderate Folio Fund, Balanced Folio Fund, Advanced Folio Fund, Aggressive Folio Fund, Fixed Income Folio Fund, Canadian Equity Folio Fund and Global Equity Folio Fund, (collectively, the “Top Funds”, individually, the “Top Fund”) for a decision (the “Decision”) pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following requirements or prohibitions under the Legislation (the “Applicable Requirements”) shall not apply in connection with the investment by the H class and Quadrus class of the Top Funds directly in a portfolio of H class units of selected funds within the Quadrus Group of Funds (the “Underlying Funds”, as further defined in paragraph 3 below):
(a) the provision prohibiting a mutual fund from knowingly making or 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 securityholder; and
(b) the provision requiring a management company of a mutual fund to file a report, or in British Columbia, a mutual fund manager, relating to a 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.
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 it has been represented by MFMI to the Decision Makers that:
1. MFMI is a corporation incorporated under the laws of Ontario and is or will be the manager and portfolio advisor of each of the Top Funds and Underlying Funds. MFMI is an indirect wholly-owned subsidiary of Investors Group Inc.
2. Each of the Top Funds will be an open-end mutual fund trust governed by the laws of the province of Ontario. Each Top Fund and each Underlying Fund will offer two classes of securities, being the Quadrus class securities and the H class securities, both of which will be referable to the same portfolio of assets. The Quadrus class securities and the H class securities of the Top Funds and of the Underlying Funds will be qualified for sale in each of the provinces of Canada under (final) simplified prospectuses and annual information forms that will be filed shortly in each of the provinces of Canada under SEDAR project numbers 307279 and 307524, respectively (together, the Prospectuses”).
3. The Top Funds will each invest specified percentages (the “Fixed Percentages”) of their assets (exclusive of cash and cash equivalents) in a portfolio of H class securities of selected Underlying Funds listed in the 3rd column of the table below as follows:
| Quadrus Group of Funds Top Fund |
|
Underlying Funds - H class |
| Conservative Folio Fund |
3.0% 25.0% 13.8% 3.0% 3.0% 3.4% 25.0% 13.8% 3.0% |
GWLIM Equity/Bond Fund LLIM Canadian Bond Fund LLIM Income Plus Fund LLIM Balanced Strategic Growth Fund Scudder US Growth and Income Fund Janus Global Equity Fund MAXXUM Income Fund MAXXUM Canadian Balanced Fund Templeton Canadian Equity Fund |
| Moderate Folio Fund |
4.8% 3.0% 13.7% 19.7% 3.0% 4.9% 3.0% 7.3% 23.0% 6.9% 7.7% |
GWLIM Equity/Bond Fund GWLIM Canadian Mid Cap Fund LLIM Canadian Bond Fund LLIM Income Plus Fund LLIM Balanced Strategic Growth Fund LLIM Canadian Diversified Equity Fund Scudder Canadian Equity Fund Janus American Equity Fund MAXXUM Income Fund MAXXUM Canadian Balanced Fund Templeton International Equity Fund |
| Balanced Folio Fund |
3.0% 3.0% 3.5% 3.0% 4.5% 6.0% 5.4% 25.0% 10.5% 25.0% 5.0% |
GWLIM Equity/Bond Fund GWLIM Canadian Growth Fund LLIM Income Plus Fund LLIM Balanced Strategic Growth Fund Scudder US Growth and Income Fund Scudder Canadian Equity Fund Janus Global Equity Fund MAXXUM Income Fund MAXXUM Canadian Balanced Fund MAXXUM Dividend Fund Templeton International Equity Fund |
| Advanced Folio Fund |
3.0% 3.0% 20.1% 3.0% 13.2% 7.0% 3.9% 10.0% 22.0% 5.9% 5.0% |
GWLIM Canadian Growth Fund GWLIM Canadian Mid Cap Fund LLIM Income Plus Fund LLIM Balanced Strategic Growth Fund LLIM Canadian Diversified Equity Fund LLIM US Growth Sectors Fund Scudder Canadian Equity Fund Janus American Equity Fund MAXXUM Canadian Equity Growth Fund MAXXUM Natural Resource Fund Templeton International Equity Fund |
| Aggressive Folio Fund |
3.0% 7.2% 7.0% 7.0% 5.1% 3.0% 9.9% 25.0% 23.8% 3.0% 3.0% |
GWLIM Emerging Industries Fund LLIM Canadian Diversified Equity Fund LLIM Canadian Growth Sectors Fund LLIM US Equity Fund Scudder Greater Europe Fund Scudder Emerging Markets Fund Janus American Equity Fund MAXXUM Dividend Fund MAXXUM Canadian Equity Growth Fund MAXXUM Natural Resource Fund Templeton Canadian Equity Fund |
| Fixed Income Folio Fund |
37.0% 43.0% |
LLIM Canadian Bond Fund MAXXUM Income Fund |
| Canadian Equity Folio Fund |
3.0% 3.0% 20.0% 10.0% 3.0% 20.0% 18.6% 4.3% |
GWLIM Canadian Mid Cap Fund GWLIM Emerging Industries Fund LLIM Canadian Diversified Equity Fund LLIM Canadian Growth Sectors Fund Scudder Canadian Equity Fund MAXXUM Dividend Fund MAXXUM Canadian Equity Growth Fund Templeton Canadian Equity Fund |
| Global Equity Folio Fund |
20.0% 10.0% 3.0% 10.0% 11.4% 6.7% 9.0% 3.0% 20% |
LLIM US Equity Fund LLIM US Growth Sectors Fund Scudder US Growth and Income Fund Scudder Greater Europe Fund Scudder Pacific Fund Scudder Emerging Markets Fund Janus American Equity Fund Janus Global Equity Fund Templeton International Equity Fund |
4. It is proposed by MFMI that the Fixed Percentages of assets invested by a Top Fund in the H class securities of the Underlying Funds may not deviate more than 2.5% above or below the Fixed Percentages (the “Permitted Ranges”). MFMI will review the investments made by each Top Fund in H class securities of the Underlying Funds on a daily basis and will adjust them as needed to keep within the Fixed Percentages.
5. In addition, the appropriateness of each Top Fund’s selection of Underlying Funds and Fixed Percentages will also be reviewed by MFMI on an ongoing basis to ensure that a particular Underlying Fund or Fixed Percentage continues to be appropriate for a Top Fund’s investment objectives. MFMI may, as the result of that review, decide to change the Fixed Percentages in one or more Underlying Funds, remove an existing Underlying Fund or add a new Underlying Fund. MFMI will give unitholders of the H class and of the Quadrus class of the Top Funds 60 days’ prior notice of any such change and amend the Prospectuses of the H class and Quadrus class of the Top Fund to reflect any such change.
6. The H class securities, which are designed for high net worth investors, will be sold on a no-load basis and will carry a low management fee. The Quadrus class securities, which are designed for the average retail investor, will be sold on an initial sales commission or deferred sales commission basis and will have a higher management fee than the H class securities.
7. Given the different fees payable by each class of securities, the Top Funds will be investing only in the H class securities of the Underlying Funds because if they were to invest in Quadrus class securities of the Underlying Funds, this would have the effect of forcing investors in the H class securities of the Top Funds to pay higher fees associated with a Quadrus class investment.
8. The management fee structure for the Top Funds will be such as to avoid the duplication of management fees. The Top Funds, in issuing H class securities to high net worth investors, will charge only a nominal fee, currently estimated to be 15 basis points per annum, to compensate MFMI for Underlying Fund selection, asset allocation and ongoing monitoring, re-balancing and related investment management services which are in addition to the administrative and portfolio management services provided to the Underlying Funds. The Top Funds, in issuing Quadrus class securities to investors, will charge a management fee that will be approximately equal to the management fee that an investor in Quadrus class securities would pay if he or she invested directly into the Underlying Funds, plus the estimated 15 basis point fee referred to above. The purpose of this structure is to allow both H class and Quadrus class investors to pay sales charges and management fees for their Top Fund investment similar to what they would pay if they invested in the Underlying Funds in the same proportions directly.
9. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securities administrators pursuant to National Instrument 81-102 Mutual Funds (“NI 81-102"), the investments by the Top Funds in the H class securities of the Underlying Funds have been or will be structured to comply with the investment restrictions of the Legislation and NI 81-102.
10. In the absence of this Decision, pursuant to the Legislation, the Top Funds are each prohibited from (a) knowingly making an investment in H class securities of the Underlying Funds to the extent that the Top Fund, either alone or in combination with other MFMI managed funds, is a substantial security holder of the H class of the Underlying Funds; and (b) knowingly holding an investment referred to in subsections (a) hereof. As a result, in the absence of this Decision, the Top Funds would be required to divest themselves of any investments referred to in subsections (a) and (b) herein.
11. In the absence of this Decision, the Legislation requires MFMI to file a report on every purchase or sale of securities of the Underlying Funds by the Top Funds.
12. Each investment by the Top Funds in H class securities of the Underlying Funds will be in the best interests of the Top Funds and represents the business judgment of “responsible persons” (as defined in the Legislation), uninfluenced by considerations other than the best interests of the Top Funds and the Underlying Funds.
AND WHEREAS under the System, this MRRS Decision Document evidences the Decision of each Decision Maker;
AND WHEREAS each Decision Maker is satisfied that the tests 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 Funds from investing in, or redeeming the securities of, the H class securities of the Underlying Funds;
PROVIDED THAT IN RESPECT OF the investment by the Top Funds directly in H class securities of the Underlying Funds:
1. the Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publication in final form of any legislation or rule of that Decision Maker dealing with matters in section 2.5 of NI 81-102; and
2. the Decision shall only apply if, at the time the Top Funds make or hold an investment in H class securities of the Underlying Funds, the following conditions are satisfied:
(a) the securities of the H class and Quadrus class of the Top Funds and the securities of the H class of the Underlying Funds are being offered for sale in the jurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information form which have been filed with and accepted by the Decision Maker;
(b) the investment by a Top Fund in H class securities of the Underlying Funds is compatible with the investment objective of the Top Fund;
(c) the simplified prospectus discloses the intent of the Top Fund to invest in the H class securities of 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 Underlying Funds are not mutual funds whose investment objective includes investing directly or indirectly in other mutual funds;
(e) the Top Funds each invest their assets (exclusive of cash and cash equivalents) in H class securities of the Underlying Funds in accordance with the Fixed Percentages disclosed in the simplified prospectus;
(f) the holdings of the Top Funds in the H class of the Underlying Funds do not deviate from the Permitted Ranges;
(g) any deviation from the Fixed Percentages is caused by market fluctuations only;
(h) if an investment by a Top Fund in the H class securities of any of the Underlying Funds has deviated from the Permitted Ranges as a result of market fluctuations, the investment portfolio of the Top Fund was re-balanced to comply with the Fixed Percentages on the next day on which the net asset value was calculated following the deviation;
(i) if the Fixed Percentages and the Underlying Funds which are disclosed in the prospectus have been changed, either the simplified prospectus has been amended or a new simplified prospectus filed to reflect the change, and the securityholders of the H class and Quadrus class of the affected Top Fund have been given at least 60 days’ notice of the change;
(j) there are compatible dates for the calculation of the net asset value of the Top Funds and the H class of the Underlying Funds for the purpose of the issue and redemption of the securities of such mutual funds;
(k) no sales charges are payable by the Top Funds in relation to their purchases of securities of the H class of the Underlying Funds;
(l) no redemption fees or other charges are charged by an Underlying Fund in respect of the redemption by a Top Fund of securities of the H class of the Underlying Funds owned by the Top Fund;
(m) no fees or charges of any sort are paid by a 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 purchase, holding or redemption by a Top Fund of the securities of the H class of the Underlying Funds;
(n) the arrangements between or in respect of the H class and Quadrus class of each Top Fund and the H class of the Underlying Funds are such as to avoid the duplication of management fees;
(o) any notice provided to securityholders of the H class of an Underlying Fund, as required by applicable laws or the constating documents of the Underlying Fund, has been delivered by the H class and the Quadrus class of a Top Fund to its securityholders along with all voting rights attached to the securities of the H class of the Underlying Fund which are directly owned by the H class and Quadrus class of the Top Fund;
(p) all of the disclosure and notice material prepared in connection with a meeting of securityholders of the H class of an Underlying Fund and received by the H class and Quadrus class of the Top Fund has been provided to its securityholders, the securityholders have been permitted to direct a representative of the H class and of the Quadrus class of the Top Fund to vote such class’ holdings in the H class of the Underlying Fund in accordance with their direction, and the representative of the H class and of the Quadrus class of the Top Fund has not voted such class’ holdings in the H class of the Underlying Funds except to the extent the securityholders of the H class and Quadrus class of the Top Fund have directed;
(q) in addition to receiving the annual and, upon request, the semi-annual financial statements, of the H class or Quadrus class of the Top Funds, as the case may be, securityholders of the H class and Quadrus class of a Top Fund have received (i) appropriate summary disclosure in the financial statements of each H class and Quadrus class of a Top Fund in respect of that Top Fund’s holdings of H class securities of the Underlying Funds; or (ii) upon request, the annual and semi-annual financial statements of the H class of the Underlying Funds in either a combined report, containing financial statements of the H class and Quadrus class of a Top Fund and of the H class of the Underlying Funds, or in a separate report containing the financial statements of the H class of the Underlying Funds; and
(r) to the extent that either the H class or Quadrus class of securities of the Top Funds do not use a combined simplified prospectus and annual information form containing disclosure about the H class and Quadrus class of the Top Funds and the H class of the Underlying Funds, copies of the simplified prospectus and annual information form of the H class of the Underlying Funds have been provided upon request to securityholders of the H class and Quadrus class of the Top Funds and this right is disclosed in the prospectus of the H class and Quadrus class of the Top Funds.
DATED at Toronto, Ontario this 5th day of January, 2001.
J. A. Geller Howard I. Wetston