Exemption Orders (Discretionary)
SPECTRUM RRSP EUROPEAN GROWTH FUND
2001 BCSECCOM 98
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from certain of the self dealing requirements regarding investments for specified purposes 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. 120(1), 120(2), 121(2)(b), 126(a), 126(d), 127(1)(a) and 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 RRSP EUROPEAN GROWTH FUND, SPECTRUM RRSP GLOBAL FINANCIAL SERVICES FUND, SPECTRUM RRSP GLOBAL HEALTH SCIENCES FUND, SPECTRUM RRSP WORLD GROWTH MANAGERS FUND (collectively, the “RSP Funds”)
AND
SPECTRUM WORLD GROWTH MANAGERS FUND (the “Managers 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 ("SIM"), the RSP Funds and Managers Fund (collectively, the “Top Funds”) and the Bottom Funds (defined below) for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that:
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 shall not apply in respect of certain investments to be made by the Top Funds in their corresponding Bottom Funds;
2. the requirements contained in the Legislation requiring a management company 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, shall not apply in respect of certain investments to be made by the Top Funds in their corresponding Bottom Funds; and
3. the requirements contained in the Legislation prohibiting the portfolio manager (or in the case of the Securities Act (British Columbia), the mutual fund or responsible person) from knowingly causing an investment portfolio managed by it (the mutual fund) to invest in the securities of an issuer in which a responsible person is an officer or director unless the specific fact is disclosed to the client, if applicable, and the written consent of the client to the investment is obtained before the purchase shall not apply in respect of certain investments to be made by the Top Funds in their applicable Bottom Funds.
The Legislation outlined above in paragraphs 1, 2 and 3 will be referred to in this Decision Document as the "Applicable Legislation";
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 throughout this Decision Document, the term “Reference Fund(s)” shall mean Spectrum European Growth Fund when used in connection with Spectrum RRSP European Growth Fund, Spectrum Global Financial Services Fund when used in connection with Spectrum RRSP Global Financial Services Fund, and Spectrum Global Health Sciences Fund when used in connection with Spectrum RRSP Global Health Sciences Fund;
AND WHEREAS throughout this Decision Document, the term “Underlying Funds” shall mean Spectrum American Growth Fund, Spectrum European Growth Fund, Spectrum Global Growth Fund, Spectrum Asian Dynasty Fund, Spectrum Emerging Market Fund, Spectrum Global Financial Services Fund, Spectrum Global Health Sciences Fund, Spectrum Global Telecommunications Fund and such other funds established by SIM as may be designated from time to time;
AND WHEREAS throughout this Decision Document, the Reference Funds and Underlying Funds are collectively referred to as the “Bottom Funds”;
AND WHEREAS it has been represented by SIM to the Decision Makers that:
1. Each of the Top Funds and Bottom Funds is or will be an open-ended mutual fund trust established under the laws of the Province of Ontario. SIM is a corporation established under the laws of the Province of Ontario and for each of the Top Funds and Bottom Funds will be the manager and promoter. The head office of SIM is in Toronto, Ontario.
2. Certain officers and/or directors of SIM are also individual trustees and/or officers of the Bottom Funds.
3. The Top Funds and Bottom Funds are or will be reporting issuers. The securities of each of the Top Funds and Bottom Funds are or will be qualified under a simplified prospectus and annual information form (collectively, the "Prospectus") filed in all provinces and territories.
4. The Prospectus will disclose the investment objectives, investment strategies, risks and restrictions of the Top Funds and Bottom Funds.
5. Each of the RSP Funds seeks to achieve its investment objective while ensuring that securities of the RSP Fund do not constitute "foreign property" for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and similar plans ("Registered Plans").
6. To achieve its investment objective, each of the RSP Funds invests its assets in securities such that its units will, in the opinion of tax counsel to the RSP Funds, be "qualified investments" for Registered Plans and will not constitute foreign property in a Registered Plan. This will primarily be achieved through the implementation of a derivative strategy. However, the RSP Funds also intend to invest a portion of their assets in securities of the Reference Funds or, in the case of Spectrum RRSP World Growth Managers Fund (the “RSP Managers Fund”), in securities of the Underlying Funds. This investment by the RSP Funds will at all times be below the maximum foreign property limit prescribed for Registered Plans (the "Permitted Limit").
7. The investment objectives of the Reference Funds, Underlying Funds and the Managers Fund are achieved through investment primarily in foreign securities.
8. The direct investments by the RSP Funds in the Reference Funds or Underlying Funds, as the case may be, will be within the Permitted Limit (the "Permitted RSP Fund Investment"). SIM and the RSP Funds will comply with the conditions of this Decision in respect of such investments. The amount of direct investment by each RSP Fund, except the RSP Managers Fund, in its corresponding Reference Fund will be adjusted from time to time so that, except for transitional cash, the aggregate of derivative exposure to, and direct investment in, the Reference Fund will equal 100% of the assets of the RSP Fund. The amount of direct investment by the RSP Managers Fund in the Underlying Funds will be adjusted from time to time so that, except for transitional cash, the aggregate of derivative exposure to, and direct investment in, the Underlying Funds, will equal 100% of the assets of the RSP Managers Fund.
9. To achieve their investment objectives, the Managers Fund intends to invest directly in, and the RSP Managers Fund intends to obtain direct and indirect exposure to, the securities of the Underlying Funds at a disclosed weighting (“Target Weighting”), subject to a variation of 2.5% above or below such Target Weighting to account for market fluctuations. SIM, the Managers Fund and the RSP Managers Fund will comply with the conditions of this Decision in respect of such investments.
10. The Bottom Funds are not currently invested in other mutual funds. The Top Funds will not invest in any mutual fund whose investment objective includes investing in other mutual funds.
11. 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 Bottom Funds have been structured to comply with the investment restrictions of the Legislation and NI 81-102.
12. In the absence of the Decision, pursuant to the Legislation, each of the Top Funds 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; and (b) knowingly holding an investment referred to in subsection (a) hereof. As a result, in the absence of this Decision a Top Fund would be required to divest itself of any investments referred to in subsection (a) hereof.
13. In the absence of the Decision, the Legislation requires SIM to file a report on every purchase or sale of securities of the Bottom Funds by the Top Funds.
14. In the absence of the Decision, SIM is prohibited from causing the Top Funds to invest in the Bottom Funds, unless the fact that certain officers and/or directors of SIM are also individual trustees and/or officers of the Bottom Funds is disclosed to the Top Funds and, if applicable, the written consent of the Top Funds is obtained before the purchase of the Top Funds' securities.
15. The investment in, or redemption of, securities of the Bottom Funds by a Top Fund represents 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 Applicable Legislation shall not apply so as to prevent the Top Funds from investing in, or redeeming the securities of, the Bottom Funds and such investments do not require further consent from or notice to securityholders of the Top Funds or the Decision Makers.
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 in section 2.5 of NI 81-102; and
2. the foregoing Decision shall only apply in respect of investments in, or transactions with, the Bottom Funds that are made by the Top Funds in compliance with the following conditions:
(a) the Top Funds and the Bottom Funds are under common management and the Bottom Funds' securities are offered for sale in the jurisdiction of the Decision Maker pursuant to a prospectus which has been or will be filed with and accepted by the Decision Maker;
(b) each RSP Fund restricts its aggregate direct investment in its corresponding Reference Fund or Underlying Funds, as the case may be, to a percentage of its assets that is within the Permitted Limit;
(c) the Managers Fund restricts its direct investment in, and the RSP Managers Fund restricts its direct and indirect exposure to, the Underlying Funds to the Target Weightings, subject to a permitted variation of 2.5% above or below such Target Weightings to account for market fluctuations (the “Permitted Ranges”);
(d) the Target Weightings which are disclosed in the Prospectus may not be changed unless the Prospectus is amended or a new prospectus is filed and the securityholders of the Managers Fund and the RSP Managers Fund have either been given at least 60 days notice of the change or the prior approval of securityholders has been given to the change at a meeting of securityholders of the Managers Fund or the RSP Managers Fund called for that purpose;
(e) if at any time the Managers Fund's direct investment in, or the RSP Managers Fund's direct and indirect exposure to, the Underlying Funds deviate from the Permitted Ranges, the necessary changes are made in the Managers Fund’s or the RSP Managers Fund’s investment portfolio as at the next valuation date in order to bring the Managers Fund’s or the RSP Managers Fund’s investment portfolio into conformity with the Target Weightings;
(f) the investments by the Top Funds in the Bottom Funds are compatible with the fundamental investment objectives of the Top Funds;
(g) the Prospectus will describe the intent of the RSP Funds to invest in a specified Reference Fund or the Underlying Funds, as applicable, the intent of the Managers Fund to invest in specified Underlying Funds, the names of the Bottom Funds, the Target Weightings and the Permitted Ranges;
(h) the RSP Funds may change the Permitted RSP Fund Investments only if they change their fundamental investment objectives in accordance with the Legislation;
(i) no sales charges are payable by the Top Funds in relation to their purchases of securities of the Bottom Funds;
(j) there are compatible dates for the calculation of the net asset value of the Top Funds and the Bottom Funds, for the purpose of the issue and redemption of the securities of such mutual funds;
(k) no redemption fees or other charges are charged by the Bottom Funds in respect of the redemption by the Top Funds of securities of the Bottom Funds owned by the Top Funds;
(l) the arrangements between or in respect of the Top Funds and the Bottom Funds are such as to avoid the duplication of management fees;
(m) no fees or charges of any sort are paid by a Top Fund or Bottom Fund or by the manager or principal distributor of such funds or by any affiliate or associate of any of the foregoing entities to anyone in respect of a Top Fund's purchase, holding or redemption of the securities of a Bottom Fund;
(n) in the event of the provision of any notice to securityholders of the Bottom Funds, as required by the constating documents of the Bottom Funds or by the laws applicable to the Bottom Funds, such notice will also be delivered to the securityholders of the Top Funds; all voting rights attached to the securities of the Bottom Funds that are owned by the Top Funds will be passed through to the securityholders of the Top Funds; in the event that a securityholders' meeting is called for a Bottom Fund, all of the disclosure and notice material prepared in connection with such meeting will be provided to the securityholders of the applicable Top Fund and such securityholders will be entitled to direct a representative of the Top Fund to vote that Top Fund's holding in the Bottom Funds in accordance with their direction; and the representative of the Top Fund will not be permitted to vote the Top Fund's holdings in the Bottom Fund except to the extent the securityholders of the Top Fund so direct;
(o) in addition to receiving the annual and, upon request, the semi-annual financial statements of the Top Funds, securityholders of the Top Funds will receive the annual and, upon request, the semi-annual financial statements of the Bottom Funds, as applicable, in either a combined report, containing the financial statements of both the Top Funds and the Bottom Funds, or in a separate report containing the Bottom Funds' financial statements; and
(p) to the extent that the Top Funds and the Bottom Funds do not use a combined simplified prospectus and annual information form and financial statements containing disclosure about the Top Funds and the Bottom Funds, copies of the simplified prospectus, annual information form and annual and semi-annual financial statements relating to the Bottom Funds may be obtained upon request by a securityholder of a Top Fund as applicable.
DATED at Toronto this 11th day of September, 2000.
Howard I. Wetston Theresa McLeod