Exemption Orders (Discretionary)
FRANK RUSSELL CANADA LIMITED
2001 BCSECCOM 780
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Investment by mutual funds in securities of other existing and future mutual funds that are under common management is exempted from certain self-dealing requirements, subject to certain specified conditions.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 123 and 130
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 FRANK RUSSELL CANADA LIMITED
ALL EQUITY PORTFOLIO
ALL EQUITY RSP PORTFOLIO
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (collectively, the "Decision Makers") in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (collectively the "Jurisdictions") has received an application (the "Application") from Frank Russell Canada Limited ("FRC"), for itself and on behalf of the All Equity Portfolio and the All Equity RSP Portfolio (each a “Top Fund” and collectively the "Top Funds") for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the following restrictions and requirements contained in the Legislation (the "Requirements") shall not apply to the purchase and sale by a Top Fund of units of Russell Canadian Equity Fund, Russell US Equity Fund, Russell Overseas Equity Fund or other mutual funds established by FRC from time to time (individually an “Underlying Fund” and collectively the “Underlying Funds”):
1. the Requirement 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 security holder; and
2. the Requirement that a management company, or in British Columbia a mutual fund manager, 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 the 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, promoter and the trustee of each of the Top Funds and the Underlying Funds.
2. The Top Funds and the Underlying Funds are open-ended investment trusts established under the laws of the Province of Ontario. Class B units of the Top Funds and Class B units of the Underlying Funds (each hereinafter referred to as "Units") are or will be offered for sale by simplified prospectuses and annual information forms (the "Top Prospectus" and "Underlying Prospectus" respectively) that have been filed and accepted by the Decision Makers. Each of the Top Funds and the Underlying Funds are or will be reporting issuers in each of the provinces and territories of Canada.
3. Each of the Top Funds and Underlying Funds is not and will not be in default of any requirements of the Legislation.
4. To achieve its investment objective, each Top Fund will invest fixed percentages (the “Fixed Percentages”) of its net assets (excluding cash and cash equivalents) in the Units of specified Underlying Funds, subject to a permitted deviation, due to market fluctuations, of not more than 2.5% above or below the Fixed Percentages (the “Permitted Ranges”).
5. The Top Prospectus will disclose the investment objectives, investment strategies, risks and restrictions of each Top Fund and Underlying Fund, the Fixed Percentages and the Permitted Ranges.
6. Except to the extent evidenced by this Decision and specific approvals granted by the Decision Makers pursuant to National Instrument 81-102 Mutual Funds (“NI 81-102”) the investments by the Top Funds in the Underlying Funds have been structured to comply with the investment restrictions of the Legislation and NI 81-102.
7. In the absence of this Decision, pursuant to the Legislation, a Top Fund is prohibited from knowingly making or holding an investment in a person or company in which the Top Fund, alone or together with one or more related mutual funds, is a substantial security holder. As a result, in the absence of this Decision, the Top Funds would be required to divest themselves of any such investments.
8. In the absence of this Decision, the Legislation requires FRC to file a report on every purchase or sale of securities of the Underlying Funds by the Top Funds.
9. The investment in, or redemption of, Units of the Underlying Funds by a Top Fund will represent the business judgment of “responsible persons” (as defined in the Legislation) 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 Requirements shall not apply so as to prevent a Top Fund from making or holding an investment in Units of the Underlying Funds or require FRC to file a report relating to the purchase or sale of such securities.
PROVIDED IN EACH CASE THAT:
1. this 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 addressed by section 2.5 of NI 81-102; and
2. the Decision shall only apply 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 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 Top Prospectus discloses the intent of the Top Fund to invest in Units 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 investment objective of the Top Fund discloses that the Top Fund invests in securities of other mutual funds;
(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 disclosed in the Top Prospectus;
(g) the Top Fund’s holdings of Units of the Underlying Funds do 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 deviates from the Permitted Ranges as a result of market fluctuations, the Top Fund’s investment portfolio is re-balanced to comply with the Fixed Percentages on the next day on which the net asset value is calculated following the deviation;
(j) if the Fixed Percentages and the Underlying Funds which are disclosed in the Top Prospectus are going to be changed, either the Top Prospectus is amended or a new simplified prospectus is filed to reflect the change, and the securityholders of the Top Fund are 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 Units of such mutual funds;
(l) no sales charges are payable by the Top Fund in relation to its purchases of Units 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 Units 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 Units 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 is 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 are provided to its securityholders, the securityholders are 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 does not vote its holdings in the Underlying Fund 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 are provided with 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
(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 Underlying Prospectus are provided upon request to securityholders of the Top Fund and the right to receive these documents is disclosed in the Top Prospectus.
DATED this day of July 19, 2001.
Paul Moore R. Stephen Paddon