Exemption Orders (Discretionary)
THE LIFEPOINTS® PORTFOLIOS
2001 BCSECCOM 99
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)(a), 121(2)(b), 126(a), 126(d), 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 THE LIFEPOINTS® PORTFOLIOS, BALANCED INCOME PORTFOLIO, BALANCED GROWTH PORTFOLIO, LONG-TERM GROWTH PORTFOLIO
AND
RUSSELL CANADIAN EQUITY FUND, RUSSELL CANADIAN FIXED INCOME FUND, RUSSELL US EQUITY FUND, RUSSELL OVERSEAS EQUITY FUND
MRRS 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 Frank Russell Canada Limited (“FRC”), LifePoints® Portfolios - Long-Term Growth Portfolio, Balanced Growth Portfolio and Balanced Income Portfolio (the “Top Funds”) and Russell Canadian Equity Fund, Russell Canadian Fixed Income Fund, Russell US Equity Fund and Russell Overseas Equity Fund (such funds, together with such other funds established by the Manager from time to time (other than Top Funds) being hereinafter referred to as the “Underlying Funds”) for a decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”) concerning the following restrictions and requirements contained in the Legislation (the “Requirements”):
1. the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making or holding an investment, directly or indirectly, in a person or company who is a substantial security holder of the mutual fund, its management company or distribution company;
2. the restrictions contained in the Legislation prohibiting a mutual fund from 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 security holder; and
3. 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.
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 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 and promoter of, and will be 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. LifePoints® B Class units of the Top Funds and Class B units of the Underlying Funds (each hereinafter referred to as “Units”) will be offered for sale by simplified prospectuses and annual information forms receipted in all of the jurisdictions of Canada (hereinafter called the “Top Prospectus” and “Underlying Prospectus” respectively). Each of the Top Funds and the Underlying Funds will be reporting issuers in each of the provinces and territories of the various securities authorities of Canada.
3. Following qualification for distribution, Units of the Top Funds will be offered for sale to investors by RBC Dominion Securities Inc., a registered investment dealer and subsidiary of the Royal Bank of Canada (“RBC”), as a principal distributor under the terms of a distribution agreement with FRC which is expected to become non-exclusive after May, 2001.
4. RBC is a publicly traded Schedule I Canadian chartered bank whose equity securities form part of major indices on The Toronto Stock Exchange.
5. Each of the Top Funds will invest all of its net assets (exclusive of cash and cash equivalents) in Units of the Underlying Funds.
6. The Top Prospectus will disclose the investment objectives, strategies and risks of each Top Fund and Underlying Fund, the fixed percentages of the net assets of the Top Fund invested in securities of the applicable Underlying Funds (the “Fixed Percentages”) and the permitted ranges within which such Fixed Percentages may vary (“Permitted Ranges”).
7. Except to the extent evidenced by this Decision and specific approvals granted by the Canadian securities administrators pursuant to National Instrument 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 National Instrument 81-102.
8. The Underlying Funds invest in diversified portfolios of securities and instruments using the Multi Asset Multi Style Multi ManagerTM investment technique. FRC selects portfolio advisers for the Underlying Funds using a combination of qualitative and quantitative measurements. Each portfolio adviser has complete discretion to purchase and sell securities for its segment of the portfolio of an Underlying Fund within the Underlying Fund’s investment objective, policies and restrictions. The Underlying Funds currently hold securities of RBC.
9. In the absence of this Decision, pursuant to the Legislation, a Top 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 security holder; (b) knowingly making an investment, directly or indirectly, in a person or company who is a substantial security holder of the mutual fund, its management company or distribution company; and (c) knowingly holding an investment referred to in subsections (a) or (b) hereof. As a result, in the absence of this Decision, the Top Fund would be required to divest itself of any investments referred to in subsections (a) and (b) herein.
10. 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.
11. The investment in, or redemption of, Units of the Underlying Funds by a Top Fund represents the business judgment of responsible persons 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 UPON each of the Decision Makers being 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 so as to prevent (i) the Top Funds from investing in, or redeeming the Units of, the Underlying Funds; and (ii) the Underlying Funds from investing in securities of RBC; and such investments do not require further consent from or notice to security holders of the Top Funds or the Decision Makers.
PROVIDED 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;
2. the foregoing Decision shall only apply in respect of investments in, or transactions with, the Underlying Funds that are made by the Top Funds in compliance with the following conditions:
(a) the investment by a Top Fund in the Underlying Funds is compatible with the fundamental investment objective of the Top Fund;
(b) each of the Top Funds and the Underlying Funds are under common management and the Underlying Funds’ Units are offered for sale in the jurisdiction of the Decision Maker pursuant to a prospectus which has been filed with and accepted by the Decision Maker;
(c) each Top Fund invests its assets (exclusive of cash and cash equivalents) in Units of certain Underlying Funds in accordance with the Fixed Percentages disclosed, subject to a permitted variation above or below such Fixed Percentages of not more than 2.5% to account for market fluctuations;
(d) the Top Prospectus will disclose the intent to invest in the Underlying Funds, the names of the Underlying Funds, the Fixed Percentages and the Permitted Ranges within which such Fixed Percentages may vary;
(e) the Fixed Percentages and Permitted Ranges which are disclosed in the Top Prospectus may be changed only if the prospectus is amended or a new prospectus is filed, and in either event, if the security holders of each Top Fund have been given at least 60 days’ notice of the change;
(f) if at any time the assets of a Top Fund that are invested in the Underlying Funds deviate from the Permitted Ranges, the necessary changes are made in the Top Fund’s investment portfolio as at the next valuation date of the Top Fund in order to bring the Top Fund’s investment portfolio into conformity with the aforesaid amount;
(g) 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 Units;
(h) in the event of the provision of any notice to security holders of an Underlying Fund as required by the constating documents of the Underlying Fund or by the laws applicable to the Underlying Fund, such notice will also be delivered to the security holders of the Top Funds; all voting rights attached to the Units of an Underlying Fund which are owned by a Top Fund will be passed through to the security holders of the Top Funds; in the event that a security holders’ meeting is called for an Underlying Fund, all of the disclosure and notice material prepared in connection with such meeting will be provided to the security holders of the Top Funds and such security holders will be entitled to direct a representative of the Top Funds to vote the Top Funds’ holdings in the Underlying Fund in accordance with their direction; and the representative of the Top Funds will not be permitted to vote the Top Funds’ holdings in the Underlying Fund except to the extent the security holders of the Top Funds so direct;
(i) no sales charges are payable by the Top Funds in relation to their purchases of Units of the Underlying Funds;
(j) no redemption fees or other charges are charged by the Underlying Funds in respect of the redemption by the Top Funds of Units of the Underlying Funds owned by the Top Funds;
(k) the arrangements between or in respect of the Top Funds and the Underlying Funds are such as to avoid the duplication of management fees;
(l) no fees or charges of any sort are paid by a Top Fund, an Underlying Fund, FRC, a distributor of a Top Fund or Underlying Fund or by any affiliate or associate of any of the foregoing entities to anyone in respect of a Top Fund’s investment in, or redemption of, Units of an Underlying Fund;
(m) in addition to receiving the annual and, upon request, the semi-annual financial statements of the Top Funds, security holders of a Top Fund will receive appropriate summary disclosure in the financial statements of the Top Fund in respect of the Top Fund’s holdings of Units of Underlying Funds;
(n) copies of the Underlying Prospectus and annual and semi-annual financial statements relating to the Underlying Funds may be obtained upon request by a security holder of the Top Funds and this fact will be disclosed in the Top Prospectus; and
3. this Decision, as it relates to the investment by an Underlying Fund in RBC, will apply only if no affiliate or associate of RBC acts as the portfolio adviser for such Underlying Fund with respect to such investment.
DATED at Toronto, Ontario this 10th day of August, 2000.
J.A. Geller R.S. Paddon