Exemption Orders (Discretionary)
NORTHWEST MUTUAL FUNDS INC.
2001 BCSECCOM 417
Headnote:
Mutual Reliance Review System for Exemptive Relief Applications - Relief from certain self-dealing requirements in connection with investments by mutual funds in securities of other mutual funds that are under common management.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(b), 126(a), 126(d) and 130
IN THE MATTER OF THE SECURITIES LEGISLATION OF THE PROVINCES 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 NORTHWEST MUTUAL FUNDS INC. (“NORTHWEST”)
AND
NORTHWEST BALANCED FUND (the “Top Fund”)
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 Northwest as manager of the Top Fund for a decision by each Decision Maker (collectively, the “Decision”) under the securities legislation of the Jurisdictions (the “Legislation”) that the following provisions of the Legislation (the “Applicable Legislation”) shall not apply to the Top Fund or Northwest, in respect of its investment in securities of Northwest International Fund (the “International Fund”) or other mutual funds created by Northwest from time to time (the “Underlying Fund(s)”), for the purpose of managing the foreign exposure of the Top Fund within the Permitted Aggregate Investment (as defined herein):
1. 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 securityholder; and
2. the requirements contained in the Legislation requiring a management company, or in British Columbia, a mutual fund manager, to file a report 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 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 Northwest has represented to the Decision Makers that:
1. Northwest is a registrant, registered as a mutual fund dealer under the Ontario Securities Act (the “Act”).
2. Northwest is or will be the trustee and manager of the Top Fund and the Underlying Funds and has its head office located in Ontario.
3. The Top Fund is an open-ended mutual fund trust established under the laws of Ontario, and the Underlying Funds are or will be open-ended mutual funds established under the laws of Ontario.
4. The Top Fund and the Underlying Funds are or will be reporting issuers and, to the best of the knowledge, information and belief of Northwest, the Top Fund and the International Fund are not in default of any requirement of the Legislation.
5. A simplified prospectus and annual information form in respect of the Top Fund and the International Fund was filed in each of the provinces and territories of Canada in June 2000 (SEDAR #263469) and receipts therefore were obtained. This prospectus was amended in October 2000. A pro forma simplified prospectus and annual information form for the Top Fund and the International Fund were filed in each of the provinces and territories of Canada on February 27, 2001 (SEDAR #335206).
6. To achieve its investment objective, the Top Fund will invest in the Underlying Funds an aggregate amount that shall not exceed 27.5% (the “Permitted Aggregate Investment”) of the assets of the Top Fund, subject to a variation to account for market fluctuations as described in representation 7.
7. To achieve its investment objective, the Top Fund will invest fixed percentages (the “Fixed Percentages”) of its assets (other than cash and cash equivalents) in securities of one or more specified Underlying Funds, subject to a variation of 2.5% above or below the Fixed Percentages (the “Permitted Ranges”) to account for market fluctuations.
8. The simplified prospectus for the Top Fund will disclose the investment objectives, investment strategies, risks and restrictions of the Top Fund and the Underlying Funds, the Fixed Percentages, the Permitted Ranges, and the Permitted Aggregate Investment. The Top Fund’s investment in Underlying Funds will be in accordance with the Fixed Percentages and the Permitted Aggregate Investment which will be disclosed in the simplified prospectus of the Top Fund.
9. 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 Top Fund in the Underlying Funds will be, structured to comply with the investment restrictions of the Legislation and National Instrument 81-102.
10. In the absence of this Decision, the Top Fund would be prohibited 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. As a result, in the absence of this Decision, the Top Fund would be required to divest itself of any investments referred to in this paragraph.
11. In the absence of this Decision, Northwest would be required to file a report of every purchase or sale by the Top Fund of the securities of an Underlying Fund.
12. The Top Fund's investment in, or redemption of, securities of the Underlying Funds will represent 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 MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
AND WHEREAS 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 pursuant to the Legislation is that the Applicable Legislation shall not apply so as to prevent the Top Fund from making and holding an investment in securities of the Underlying Funds in accordance with the Permitted Aggregate Investment, or to require Northwest to file a report relating to the purchase or sale of such securities
PROVIDED IN EACH CASE THAT:
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 the matters in section 2.5 of NI 81-102; and
2. the Decision shall only apply if, at the time the Top Fund makes or holds an investment in the Underlying Funds, the following conditions are satisfied:
(a) the securities of both the Top Fund and 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 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 discloses the intent of the Top Fund to invest directly in securities of the Underlying Funds, the name(s) of the Underlying Funds, the Fixed Percentages, the Permitted Ranges within which such Fixed Percentages may vary, and the Permitted Aggregate Investment;
(d) the investment objective of the Top Fund discloses that the Top Fund invests in securities of other mutual funds and the Permitted Aggregate Investment;
(e) the Underlying Funds are not mutual funds whose investment objective includes investing directly or indirectly in other mutual funds;
(f) the Top Fund invests its assets (exclusive of cash and cash equivalents) in the Underlying Funds in accordance with the Fixed Percentages and the Permitted Aggregate Investment disclosed in the simplified prospectus;
(g) the Top Fund 's holding of securities in the Underlying Funds does not deviate from the Permitted Ranges;
(h) any deviation from the Fixed Percentages is caused by market fluctuations only;
(i) if an 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;
(j) 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 in accordance with securities legislation to reflect the change, or a new simplified prospectus reflecting the change has been filed within ten days thereof, and the securityholders of the Top Fund have been given at least 60 days’ notice of the change;
(k) 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 the securities of such mutual funds;
(l) no sales charges are payable by the Top Fund in relation to its purchases of securities of the Underlying Funds;
(m) no redemption fees or other charges are charged by an Underlying Fund in respect of the redemption by the Top Fund of securities of the Underlying Fund owned by the Top Fund;
(n) 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 securities of the Underlying Funds;
(o) the arrangements between or in respect of the Top Fund and the Underlying Funds are such as to avoid the duplication of management fees;
(p) 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 securityholders;
(q) 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 securityholders 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;
(r) 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 securities of the Underlying Funds in the financial statements of the Top Fund; and
(s) 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 the right to receive these documents is disclosed in the prospectus of the Top Fund.
DATED this 10th day of April, 2001
J.A. Geller K.D. Adams