Exemption Orders (Discretionary)

SPECTRUM INVESTMENT MANAGEMENT LIMITED


2001 BCSECCOM 583


Headnote

Mutual Reliance Review System for Exemptive Relief Applications – Investment by mutual funds in securities of other 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. 121(2)(b), 123, 126(a), 126(d), 127(1)(a), 130(b)


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 SPECTRUM INVESTMENT MANAGEMENT LIMITED
AND SPECTRUM RRSP TACTONICS 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 Spectrum Investment Management Limited (“Spectrum Investments”) in its own capacity and on behalf of Spectrum RRSP TACTONICS Fund (the “RRSP TACTONICS Fund”), a mutual fund having an investment objective or strategy that is linked to the returns or portfolio of the Spectrum TACTONICS Fund (the “TACTONICS Fund”) while remaining 100% eligible for registered plans for a decision by each Decision Maker (collectively, the “Decision”) pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following prohibitions or requirements under the Legislation (the “Requirements”) shall not apply in respect of certain investments made by the RRSP TACTONICS Fund in the TACTONICS Fund:

1. the restrictions contained in the Legislation 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;

2. the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making or holding an investment in an issuer in which a person or company who is a substantial security holder of the mutual fund or its management company has a significant interest;

3. the requirements contained in the Legislation requiring the 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

4. the requirements contained in the Legislation prohibiting the portfolio manager or, in British Columbia, the mutual fund, from knowingly causing an investment portfolio managed by it to invest in the securities of an 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.

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 Spectrum Investments to the Decision Makers that:

1. Each of the TACTONICS Fund and the RRSP TACTONICS Fund is an open-ended mutual fund trust established under the laws of the Province of Ontario. Spectrum Investments is a corporation established under the laws of Canada and for each of the TACTONICS Fund and the RRSP TACTONICS Fund is the manager and promoter. The head office of Spectrum Investments is in Toronto, Ontario.

2. Certain officers and/or directors of Spectrum Investments are also officers of the TACTONICS Fund and the RRSP TACTONICS Fund.

3. The TACTONICS Fund and the RRSP TACTONICS Fund are reporting issuers. The securities of the TACTONICS Fund and the RRSP TACTONICS Fund are qualified under a simplified prospectus and annual information form filed in all provinces and territories. Neither the TACTONICS Fund nor the RRSP TACTONICS Fund is in default of any requirements of the Legislation.

4. The simplified prospectus will disclose the investment objectives, investment strategies, risks and restrictions of the TACTONICS Fund and the RRSP TACTONICS Fund. The investment objective of the RRSP TACTONICS Fund will include disclosure of the name of the TACTONICS Fund.

5. The investment objectives of the TACTONICS Fund are achieved through investment primarily in foreign securities.

6. To achieve its investment objective, the RRSP TACTONICS Fund invests its assets such that the securities of the RRSP TACTONICS Fund will, in the opinion of tax counsel to the RRSP TACTONICS Fund, be “qualified investments” for registered retirement savings plans, registered retirement income funds, and deferred profit sharing plans (collectively, “Registered Plans”) and will not constitute “foreign property” under the Income Tax Act (Canada). This will primarily be achieved through the implementation of a derivative strategy that provides a return linked to the returns of the TACTONICS Fund. The RRSP TACTONICS Fund will also invest a portion of its assets directly in securities of the TACTONICS Fund. This investment will at all times be below the maximum foreign property limit prescribed for Registered Plans (the “Permitted Limit”).

7. The amount of direct investments by the RRSP TACTONICS Fund in the TACTONICS Fund will be adjusted from time to time so that, except for transitional cash (ie. cash from purchases not yet invested or cash held to satisfy redemptions), the aggregate of derivative exposure to, and direct investment in, the TACTONICS Fund will equal 100% of the assets of each of the RRSP TACTONICS Fund.

8. Spectrum Investments is a wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). As a life insurance company, Sun Life makes a large number of investments in various capacities (principal and agent), and those investments include various Spectrum mutual funds. Sun Life may hold and/or acquire units of the TACTONICS Fund and/or the RRSP TACTONICS Fund, and may increase or decrease any such holdings from time to time based in part upon the investment needs and/or instructions of clients. As a result, Sun Life may from time to time hold more than 20% of the outstanding units of the RRSP TACTONICS Fund at the same time that it holds more than 10% of the outstanding units of the TACTONICS 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 Mutual Funds ("NI 81-102"), the investments by the RRSP TACTONICS Fund in the TACTONICS Fund have been structured to comply with the investment restrictions of the Legislation and NI 81-102.

10. In the absence of the Decision, pursuant to the Legislation, the RRSP TACTONICS Fund is prohibited from (a) knowingly making 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; (b) knowingly making an investment in an issuer in which a person or company who is a substantial security holder of the mutual fund or its management company has a significant interest; and (c) knowingly holding an investment referred to in subsections (a) or (b) hereof. As a result, in the absence of this Decision, the RRSP TACTONICS Fund would be required to divest itself of any investments referred to in subsection (a) or (b) hereof.

11. In the absence of this Decision, the Legislation requires Spectrum Investments to file a report on every investment of securities of the TACTONICS Fund by the RRSP TACTONICS Fund.

12. In the absence of this Decision, Spectrum Investments is prohibited from causing the RRSP TACTONICS Fund to invest in the TACTONICS Fund unless the specific fact that certain officers and/or directors of Spectrum Investments are also officers of the TACTONICS Fund is disclosed to securityholders of the RRSP TACTONICS Fund and the written consent of securityholders of the RRSP TACTONICS Fund is obtained before the purchase.

13. The investments by the RRSP TACTONICS Fund in securities of the TACTONICS Fund will represent the business judgment of "responsible persons" (as defined in the Legislation) uninfluenced by considerations other than the best interests of the RRSP TACTONICS Fund.

AND WHEREAS pursuant to the System this MRRS Decision Document evidences 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 do not apply to the RRSP TACTONICS Fund or Spectrum Investments, as the case may be, in respect of investments to be made by the RRSP TACTONICS Fund in securities of the TACTONICS Fund.

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.

2. the Decision shall only apply if, at the time the RRSP TACTONICS Fund makes or holds an investment in the TACTONICS Fund, the following conditions are satisfied:

a. the securities of both the RRSP TACTONICS Fund and the TACTONICS Fund 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 RRSP TACTONICS Fund in the TACTONICS Fund is compatible with the fundamental investment objectives of the RRSP TACTONICS Fund;

c. the investment objective of the RRSP TACTONICS Fund discloses that the RRSP TACTONICS Fund invests directly and indirectly (through derivative exposure) in the TACTONICS Fund, the name of the TACTONICS Fund and that the RRSP TACTONICS Fund is fully eligible for registered plans;

d. the simplified prospectus of the RRSP TACTONICS Fund discloses the structure of the RRSP TACTONICS Fund and the risks related to the structure;

e. the TACTONICS Fund is not a mutual fund whose investment objective includes investing directly or indirectly in other mutual funds, unless those mutual funds are index participation units, as defined in NI 81-102;

f. the RRSP TACTONICS Fund restricts its direct investment in the TACTONICS Fund to a percentage of its assets that is within the Permitted Limit;

g. there are compatible dates for the calculation of the net asset value of the RRSP TACTONICS Fund and the TACTONICS Fund for the purpose of the issue and redemption of securities of such mutual funds;

h. no sales charges are payable by the RRSP TACTONICS Fund in relation to its purchases of securities of the TACTONICS Fund;

i. no redemption fees or other charges are charged by the TACTONICS Fund in respect of the redemption by the RRSP TACTONICS Fund of securities of the TACTONICS Fund owned by the RRSP TACTONICS Fund;

j. no fees and charges of any sort are paid by the RRSP TACTONICS Fund and the TACTONICS Fund, 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 RRSP TACTONICS Fund’s purchase, holding or redemption of the securities of the TACTONICS Fund;

k. the arrangements between or in respect of the RRSP TACTONICS Fund and the TACTONICS Fund are such as to avoid the duplication of management fees;

l. any notice provided to securityholders of the TACTONICS Fund, as required by applicable laws or the constating documents of the TACTONICS Fund, has been delivered by the RRSP TACTONICS Fund to its securityholders;

m. all of the disclosure and notice material prepared in connection with a meeting of securityholders of the TACTONICS Fund and received by the RRSP TACTONICS Fund has been provided to its securityholders, the securityholders have been permitted to direct a representative of the RRSP TACTONICS Fund to vote its holdings in the TACTONICS Fund in accordance with their direction, and the representative of the RRSP TACTONICS Fund has not voted its holdings in the TACTONICS Fund except to the extent the securityholders of the RRSP TACTONICS Fund have directed;

n. in addition to receiving the annual and, upon request, the semi-annual financial statements of the RRSP TACTONICS Fund, securityholders of the RRSP TACTONICS Fund have received the annual and, upon request, the semi-annual financial statements, of the TACTONICS Fund in either a combined report, containing financial statements of the RRSP TACTONICS Fund and the TACTONICS Fund, or in a separate report containing the financial statements of the TACTONICS Fund; and

o. to the extent that the RRSP TACTONICS Fund and the TACTONICS Fund do not use a combined simplified prospectus and annual information form containing disclosure about the RRSP TACTONICS Fund and the TACTONICS Fund, copies of the simplified prospectus and annual information form of the TACTONICS Fund have been provided upon request to securityholders of the RRSP TACTONICS Fund and the right to receive these documents is disclosed in the simplified prospectus of the RRSP TACTONICS Fund.

DATED this 4th of April, 2001



Howard I. Wetston Paul M.Moore
©2024 British Columbia Securities Commission