Exemption Orders (Discretionary)
SEI INVESTMENTS CANADA COMPANY
2001 BCSECCOM 510
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from certain of the self dealing requirements regarding investments by mutual funds in securities of underlying funds, subject to certain conditions.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 120(1), 120(2), 121(2)(b), 126(a), 126(d), and 130(b).
IN THE MATTER OF THE CANADIAN 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 SEI INVESTMENTS CANADA COMPANY
AND
CORE BALANCED FUND, BALANCED GROWTH FUND, BALANCED INCOME FUND, BALANCED GROWTH PLUS FUND, DIVERSIFIED EQUITY FUND and GLOBAL EQUITY FUND
DECISION DOCUMENT
WHEREAS the Canadian 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 SEI Investments Canada Company (“SEI”), in its own capacity and on behalf of Core Balanced Fund, Balanced Growth Fund, Balanced Income Fund, Balanced Growth Plus Fund, Diversified Equity Fund and Global Equity 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 provisions of the Legislation (the “Applicable Requirements”) shall not apply to the Top Funds or SEI, as the case may be, in respect of certain investments to be made by a Top Fund directly in a portfolio of selected mutual funds under common management comprised of the Class O Units of several or more of the following: the Canadian Equity Fund, the Canadian Small Company Equity Fund, the Canadian Fixed Income Fund, the S&P 500 Synthetic Index Fund, the S&P MidCap 400 Synthetic Index Fund, the International Synthetic Index Fund, the U.S. Large Company Equity Fund, the U.S. Small Company Equity Fund, the EAFE Equity Fund and the Emerging Markets Equity Fund (collectively, the “Underlying Funds”, individually, the “Underlying Fund”):
(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 security holder; and
(b) the provision requiring a management company of a mutual fund, 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 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 SEI to the Decision Makers that:
1. SEI is a corporation established under and governed by the laws of Nova Scotia and will be the manager and principal distributor of each of the Top Funds. The head office of SEI is located in Toronto, Ontario.
2. Each of the Top Funds and of the Underlying Funds will be an open-end mutual fund trust governed by the laws of the province of Ontario. The securities of the Top Funds will be qualified for sale in each of the provinces and territories of Canada (the “Prospectus Jurisdictions”) under a (final) simplified prospectus and annual information form that will be filed in each of the Prospectus Jurisdictions under SEDAR project number 341277 (the “Prospectus”).
3. The Top Funds will provide investors with a professionally managed portfolio designed to suit individual investor objectives, risk tolerance and investment time horizons. Each of the Top Funds will seek to achieve its investment objective by investing its assets, through the Underlying Funds, in Canadian equities, Canadian Bonds and foreign equities with an investment approach that is consistent with the Top Fund’s name.
4. As part of its investment strategy, each Top Fund will invest specified percentages (the “Fixed Percentages”) of its assets (exclusive of cash and cash equivalents), as specified in the Prospectus, in the securities of the Underlying Funds.
5. The Underlying Funds are reporting issuers in each of the Prospectus Jurisdictions and are not in default of any of the requirements of the securities legislation of any of the Prospectus Jurisdictions. The securities of each of the Underlying Funds, except for the securities of the Canadian Small Company Equity Fund, are currently qualified for distribution pursuant to simplified prospectuses and annual information forms filed in each of the Prospectus Jurisdictions. The Canadian Small Company Equity Fund is currently offered to the public in the Prospectus Jurisdictions by way of private placement but will be qualified for sale under a (final) simplified prospectus and annual information form that will be filed in each of the Prospectus Jurisdictions under SEDAR project number 341304.
6. The Underlying Funds are not invested in other mutual funds, except to the extent permitted by section 2.5 of National Instrument 81-102 Mutual Funds (“NI 81-102"). The Top Funds will not invest in any mutual fund whose investment objective includes investing in other mutual funds.
7. It is proposed by SEI that the Fixed Percentages of assets invested by a Top Fund in the securities of the Underlying Funds may not deviate more than 2.5% above or below the Fixed Percentages (the “Permitted Ranges”) to account for market fluctuations. SEI will review the investments made by each Top Fund in securities of the Underlying Funds on a daily basis and will adjust them as needed to keep within the Fixed Percentages.
8. In addition, the appropriateness of each Top Fund’s selection of Underlying Funds and of the Fixed Percentages will also be reviewed by SEI 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. SEI 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. SEI will give security holders of the Top Funds 60 days’ prior notice of any such change and amend the Prospectus to reflect any such change.
9. The Prospectus of the Top Funds will disclose the investment objectives, investment strategies, risks and restrictions of the Top Funds and the Underlying Funds, the Fixed Percentages and the Permitted Ranges.
10. The arrangements between or in respect of a Top Fund and the Underlying Funds will be such as to avoid the duplication of management fees. Management fees will not be payable to an Underlying Fund by the Top Funds. No sales charges will be payable by a Top Fund in relation to its purchase of securities of an Underlying Fund. No redemption fees or other charges will be charged by an Underlying Fund in respect of the redemption by a Top Fund of securities of the Underlying Fund owned by such Top Fund.
11. Except to the extent evidenced by this Decision and specific approvals granted by the Decision Makers pursuant to NI 81-102, the investments by the Top Funds in securities of the Underlying Funds have been or will be structured to comply with the investment restrictions of the Legislation and NI 81-102.
12. In the absence of this Decision, pursuant to the Legislation, each Top Fund is prohibited from knowingly making or holding an investment in securities of the Underlying Funds to the extent that the Top Fund, either alone or together with one or more related mutual funds, is a substantial security holder of the Underlying Funds. As a result, in the absence of this Decision, each Top Fund would be required to divest itself of any such investments.
13. In the absence of this Decision, the Legislation requires SEI to file a report on every purchase or sale of securities of the Underlying Funds by a Top Fund.
14. Each investment by the Top Funds in the securities of the Underlying Funds will represent the business judgment of “responsible persons” (as defined in the Legislation), uninfluenced by considerations other than the best interests of the Top 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 Underlying Funds;
PROVIDED THAT IN RESPECT OF the investment by the Top Funds directly in 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 a Top Fund makes or holds an investment in its Underlying Funds, the following conditions are satisfied:
(a) the securities of both the Top Funds 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 have been filed with and accepted by the Decision Maker;
(b) the investment by a Top Fund in the Underlying Funds is compatible with the investment objective of the Top Fund;
(c) the Prospectus discloses the intent of the Top Funds to invest in 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 investment objective of each Top Fund discloses that the Top Fund invests its assets (exclusive of cash and cash equivalents) in securities of the Underlying Funds in accordance with the Fixed Percentages disclosed in the Prospectus;
(e) the Underlying Funds are not mutual funds whose investment objective includes investing directly or indirectly in other mutual funds;
(f) the Top Funds’ holdings of securities 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 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;
(i) if the Fixed Percentages and the Underlying Funds which are disclosed in the Prospectus have been changed, either the Prospectus has been amended in accordance with securities legislation to reflect this significant change, or a new simplified prospectus reflecting the significant change has been filed within ten days thereof, and the security holders of the 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 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 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 Underlying Fund 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 Underlying Funds;
(n) the arrangements between or in respect of the Top Funds and the Underlying Funds are such as to avoid the duplication of management fees;
(o) any notice provided to security holders of an Underlying Fund, as required by applicable laws or the constating documents of that Underlying Fund, has been delivered by a Top Fund to its security holders;
(p) all of the disclosure and notice material prepared in connection with a meeting of security holders of an Underlying Fund and received by a Top Fund has been provided to its security holders, the security holders 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 security holders of the Top Fund have directed;
(q) in addition to receiving the annual and, upon request, the semi-annual financial statements, of a Top Fund, security holders of the Top Funds have received appropriate summary disclosure in respect of the Top Fund’s holdings of securities of the Underlying Funds in the financial statements of each Top Fund; and
(r) to the extent that the Top Funds and the Underlying Funds do not use a combined simplified prospectus and annual information form containing disclosure about the Top Funds and the Underlying Funds, copies of the simplified prospectus and annual information form of the Underlying Funds have been provided upon request to security holders of the Top Funds and the right to receive these documents is disclosed in the Prospectus of the Top Funds.
DATED the 16th day of May, 2001.
Howard I. Wetston Robert W. Davis