Exemption Orders (Discretionary)
ICM BALANCED FUND
2001 BCSECCOM 968
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Investment by existing and future 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. Previous order relating to funds revoked to extend relief to additional and future funds.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(b), 126(a), 126(d), 130, and 171
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 ICM BALANCED FUND, ICM EQUITY FUND, INTEGRA CAPITAL FINANCIAL CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the Canadian 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 from Integra Capital Financial Corporation (“Integra”), as manager and trustee of the ICM Balanced Fund, the ICM Equity Fund (collectively, the “Existing Top Funds”) and other mutual funds managed by Integra after the date of this Decision (defined herein) having an investment strategy that involves investing in one or more mutual funds managed by Integra for foreign property exposure while remaining eligible for registered plans (individually, a “Future Top Fund” and, together with the Existing Top Funds, the “Top Funds”) for a decision by each Decision Maker (collectively, 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 Integra or the Top Funds, as the case may be, in respect of certain investments to be made by a Top Fund in an Underlying Fund (as defined herein) from time to time:
(a) 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 security holder, and
(b) 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 the Decision Maker in each of the Jurisdictions has received an application from Integra for a Decision under the Legislation revoking and replacing the MRRS Decision Document dated September 15, 2000 entitled In the Matter of ICM Balanced Fund, ICM Equity Fund, Integra Capital Financial Corporation (the “Existing Decision Document”) which decided that the Applicable Requirements did not apply to Integra or the Existing Top Funds, as the case may be, in respect of certain investments to be made by the Existing Top Funds in each of the Analytic Core U.S. Equity Fund (formerly Integra Analytic U.S. Large Cap Equity Fund) and the Acadian Core International Equity Fund (formerly Integra EuroPacific Fund) (together, the “Existing Underlying Funds”);
AND WHEREAS pursuant to the Mutual Reliance Review System (“MRRS”) for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS Integra has represented to the Decision Makers as follows:
1. Integra is a corporation incorporated under the laws of Ontario and its registered office is located in Ontario. Integra is or will be the manager and trustee of the Top Funds and the Underlying Funds (as defined herein) (collectively, the “Integra Funds”).
2. Each of the Integra Funds is or will be an open-end mutual fund trust established under the laws of Ontario. Units of each of the Integra Funds are or will be qualified for distribution in all of the provinces of Canada pursuant to a simplified prospectus and annual information form filed with and accepted by the Decision Makers.
3. Each of the Integra Funds is or will be a reporting issuer in each of the provinces of Canada. The Existing Top Funds and the Existing Underlying Funds are not in default of any requirements of the Legislation.
4. Each of the Top Funds seeks to achieve its investment objective while ensuring that its securities do not constitute “foreign property” for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and similar plans (“Registered Plans”).
5. For the purposes of foreign content exposure, the Existing Top Funds currently invest in the Existing Underlying Funds subject to the terms of an exemption letter pursuant to National Instrument 81-102 Mutual Funds (“NI 81-102") dated September 15, 2000 (the “Existing Exemption”), and the terms of the Existing Decision Document.
6. Integra now wishes to add the NWQ U.S. Large Cap Value Fund (the “NWQ Fund”) as an Underlying Fund and may in the future establish other mutual funds (the “Future Underlying Funds”, and together with the NWQ Fund and the Existing Underlying Funds, the “Underlying Funds”).
7. Integra now wishes to revoke and replace the terms of the Existing Exemption and the Existing Decision Document so that the Top Funds may invest in the Underlying Funds on substantially similar terms as the terms of the Existing Exemption and the Existing Decision Document.
8. The investment objectives of the Underlying Funds are or will be achieved through investment primarily in foreign securities.
9. As part of its investment strategy, each Top Fund seeks to obtain foreign content exposure by investing fixed percentages (the “Fixed Percentages”) of its assets (other than cash and cash equivalents) in securities of the Underlying Funds, subject to a variation of 2.5 percent above or below the Fixed Percentages (the “Permitted Ranges”) to account for market fluctuations.
10. The aggregate amount of assets invested by a Top Fund in one or more Underlying Funds for foreign content purposes does not exceed an amount which is 2.5 percent below the amount prescribed from time to time as the maximum permitted amount capable of being made as foreign property investment under the Income Tax Act (Canada) for Registered Plans (the “Permitted Aggregate Investment”), subject to a variation to account for market fluctuations as described in representation #9.
11. Each Top Fund will invest its assets in accordance with the Fixed Percentages and the Permitted Aggregate Investment.
12. The simplified prospectus for the Top Funds discloses the investment objectives, investment strategies, risks and restrictions of the Top Funds and the applicable Underlying Funds, the Fixed Percentages and the Permitted Ranges.
13. The investments by the Top Funds in securities of the Underlying Funds represent the business judgement of “responsible persons” (as defined in the Legislation) uninfluenced by considerations other than the best interests of the Top Funds.
14. Except to the extent evidenced by this Decision and specific approvals granted by the regulator or the securities regulatory authority in each of the provinces of Canada pursuant to NI 81-102, the investments by each of the Top Funds in the Underlying Funds have been structured to comply with the investment restrictions of the Legislation and NI 81-102.
15. In the absence of this Decision, pursuant to the Legislation, each Top Fund is 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 security holder. As a result, in the absence of this Decision, each Top Fund would be required to divest itself of any such investments.
16. In the absence of this Decision, Legislation requires Integra to file a report on every purchase or sale of securities of the Underlying Funds by a Top Fund.
AND WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of each Decision Maker;
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 Existing Decision Document is hereby revoked and replaced with the following Decision with effect as of, and from, the date hereof;
AND 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 making and holding an investment in securities of the Underlying Funds or require Integra to file a report relating to the purchase and 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 matters in section 2.5 of NI 81-102.
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 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 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 Underlying Funds are not mutual funds whose investment objective includes investing directly or indirectly in other mutual funds;
(e) 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 simplified prospectus and in accordance with the Permitted Aggregate Investment;
(f) the Top Fund’s holdings of securities in the Underlying Funds does not deviate from the Permitted Ranges;
(g) any deviation from the Fixed Percentages is caused by market fluctuations only;
(h) where 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 is 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 simplified prospectus have been changed, either the Top Funds’ simplified prospectus has been amended or a new simplified prospectus has been filed to reflect the change, 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 Fund 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 Fund in relation to its purchase of securities in the Underlying Funds;
(l) 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;
(m) 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;
(n) the arrangements between or in respect of the Top Fund 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 the Top Fund to its security holders;
(p) all of the disclosure and notice material prepared in connection with a meeting of security holders of the Underlying Funds and received by the 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 the Top Fund, security holders of a 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
(r) 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 security holders of the Top Fund and the right to receive these documents is disclosed in the simplified prospectus of the Top Fund.
DATED October 4, 2001.
Howard I. Wetston R. Stephen Paddon