Exemption Orders (Discretionary)

NATIONAL BANK SECURITIES INC.


2001 BCSECCOM 97


Headnote

Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from certain of the self dealing requirements regarding the investment by a mutual fund of 100% of its assets, excluding cash and cash equivalents, in securities of a third party managed mutual fund.

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), 130(b).

IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, ONTARIO AND NOVA SCOTIA

AND

IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF NATIONAL BANK SECURITIES INC.

AND

NATIONAL BANK/FIDELITY CANADIAN ASSET ALLOCATION FUND, NATIONAL BANK/FIDELITY GLOBAL ASSET ALLOCATION FUND, NATIONAL BANK/FIDELITY INTERNATIONAL PORTFOLIO FUND, NATIONAL BANK/FIDELITY GROWTH AMERICA FUND, NATIONAL BANK/FIDELITY FOCUS FINANCIAL SERVICES FUND

MRRS DECISION DOCUMENT

WHEREAS the Canadian securities regulatory authority or regulator (the “Decision Makers”) in each of the provinces of British Columbia, Alberta, Ontario and Nova Scotia (the “Jurisdictions”) has received an application (the “Application”) from National Bank Securities Inc. ("NBSI"), the manager and principal distributor of the National Bank/Fidelity Canadian Asset Allocation Fund, National Bank/Fidelity Global Asset Allocation Fund, National Bank/Fidelity International Portfolio Fund, National Bank/Fidelity Growth America Fund, National Bank/Fidelity Focus Financial Services Fund and other mutual funds managed by NBSI after the date of this Decision (defined herein) having an investment objective that is to replicate the return of a specified third party managed fund (individually, the “Fund” and collectively, the “Funds”) for a decision by each Decision Maker (collectively, the “Decision”) pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that, if applicable in a particular Jurisdiction, the following requirements and restrictions contained in the Legislation (the “Applicable Requirements”) shall not apply to the Funds, or NBSI, as the case may be, in respect of certain investments to be made by the Funds in the Fidelity Canadian Asset Allocation Fund, Fidelity Global Asset Allocation Fund, Fidelity International Portfolio Fund, Fidelity Growth America Fund, Fidelity Focus Financial Services Fund and such other specified third party managed funds which the Funds may invest in from time to time (individually, the “Underlying Fund” and collectively, the “Underlying Funds”):

A. the requirement contained in the Legislation prohibiting the Funds from knowingly making or holding an investment in a person or company in which each Fund, alone or together with one or more related mutual funds, is a substantial security holder;

B. the requirement contained in the Legislation requiring NBSI to file a report of the following:

i. every transaction of purchase or sale of securities between a Fund and any related person or company; and

ii. any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, a Fund is a joint participant with one or more of its related persons or companies, in respect of each Fund to which it provides services or advice, within 30 days after the end of the month in which it occurs.

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 NBSI to the Decision Makers that:

1. Each of the Funds will be an open-ended mutual fund trust established under the laws of the Province of Ontario and will be qualified under a simplified prospectus and a preliminary annual information form (the “Prospectus) which will be filed in the Jurisdictions, as well as in Québec, New Brunswick and Prince Edward Island. After the date of this Decision, the Funds may also be offered for sale in the remaining provinces and territories of Canada.

2. NBSI will serve as the manager, principal distributor and registrar and transfer agent of each of the Funds. The head office of NBSI is in Montreal, Québec.

3. The investment objective of each of the Funds will be to replicate the return of an Underlying Fund by investing all of the net assets of each Fund (excluding cash or cash equivalents to the extent necessary to meet redemptions and to pay the management fee charged at the Fund level) in the securities of a single Underlying Fund.

4. The Underlying Fund in which each of the Funds invests will at all times be a prospectus-qualified mutual fund and will be disclosed in the Prospectus of the Funds.

5. The investment objectives of each of the Funds and its corresponding Underlying Fund will be described in the Prospectus. The Underlying Fund in which each of the Funds invests will not be changed unless the prior approval of the unitholders of the Fund has been obtained. A new prospectus or an amended prospectus will be filed with the Decision Makers forthwith disclosing the change in the Underlying Fund.

6. The managers of the Underlying Funds will deal at arms length with NBSI and will be chosen by NBSI on the basis of their management style, their choice of sub-advisers and other consultants, their efficiency of administration, the calibre of their reporting procedures and the historic performance of their mutual funds.

7. The arrangements between the Funds and Underlying Funds will avoid the duplication of management fees and operating expenses. The management fee charged by the Underlying Fund’s manager will be reduced through the payment of a management fee distribution or the use of a class of securities with a lower management fee than is available to the general investing public, with the result that, except as described below, the aggregate of the management fees payable by the Fund at the Underlying Fund level and the management fee payable at the Fund level will not exceed the management fee which is otherwise charged indirectly to the general investing public at the Underlying Fund level.

8. If, having initially negotiated a fee structure with the manager of an Underlying Fund under which the aggregate of the management fees charged indirectly at the Underlying Fund level and directly at the Fund level does not exceed the management fee which is otherwise charged by the manager of the Underlying Fund to the general investing public at the Underlying Fund level, NBSI is, after arms-length negotiations with the manager of the Underlying Fund, forced to accept an increase in the management fee charged to the Fund by the manager of the Underlying Fund, NBSI may increase the aggregate of the management fees charged at the Underlying Fund and Fund levels by a corresponding amount or percentage, provided it discloses in the notice of such increase to the Fund’s unitholders which is required under National Instrument 81-102 Mutual Funds (“NI 81-102") the extent of the increase in the management fee being charged to the Fund by the manager of the Underlying Fund.

9. Except to the extent evidenced by this Decision Document and the anticipated specific approvals to be granted by securities regulatory authorities pursuant to NI 81-102, the investments by the Funds in securities of Underlying Funds will comply in all respects with the investment restrictions in the Legislation and in NI 81-102.

10. Unless the requested relief is granted,

i. each of the Funds would be prohibited from knowingly making and holding an investment in securities of an Underlying Fund to the extent that each of the Funds, either alone or in combination with other NBSI managed funds, is a substantial security holder of the Underlying Fund; and

ii. NBSI would be required to file reports respecting every purchase or sale of securities of an Underlying Fund by the Funds.

11. Each investment by the Funds in the Underlying Funds will be in the best interests of the Funds and will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Funds and the Underlying Funds.

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 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 to the Funds or NBSI, as the case may be, in respect of the investments to be made by the Funds in securities of the Underlying Funds;

PROVIDED THAT IN RESPECT OF the investment by the Funds in units 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 the matters in section 2.5 of National Instrument 81-102; and mutual funds investing in other mutual funds; and

2. the Decision shall apply only to investments in, or transactions with, the Underlying Funds that are made by the Funds in compliance with the following conditions:

(a) the investment by each of the Funds in securities of an Underlying Fund will be compatible with the fundamental investment objective of the Funds;

(b) the Underlying Funds’ securities will be 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) the Prospectus of a Fund will describe the intent of the Fund to invest in a specified Underlying Fund, disclose the manager of the specified Underlying Fund, and include all of the disclosure in respect of such Underlying Fund that the Underlying Fund will be required to include in its own simplified prospectus in accordance with the disclosure requirements of Part B of Form 81-101F1 Contents of Simplified Prospectus (“Form 81-101F1");

(d) an Underlying Fund will not include investing in other mutual funds in its investment objective;

(e) the particular Underlying Fund in which each Fund will invest, and which will be disclosed in the Prospectus, may not be changed unless the prior approval of the unitholders of the relevant Fund has been obtained and a new prospectus or an amended prospectus reflecting the proposed change is filed forthwith with the Decision Makers;

(f) the notice received by unitholders of a Fund with respect to a change in an Underlying Fund will specifically disclose any change in management fee rebate if such change would result in an increase in management fees for the Fund.

(g) any management fee rebates negotiated by NBSI with the managers of the Underlying Funds will be distributed to the relevant Fund. Any management fee rebates will be reflected in the financial statements of the Fund;

(h) there will be compatible dates for the calculation of the net asset value of each of the Funds and the corresponding Underlying Funds for the purpose of the issue and redemption of the securities thereof;

(i) no sales charges will be payable to NBSI by a purchaser of the units of a Fund;

(j) no sales charges will be payable by a Fund in relation to its purchase of the securities of an Underlying Fund;

(k) no redemption fees or other charges will be charged by an Underlying Fund in respect of the redemption by a Fund of the securities of the Underlying Fund owned by the Fund;

(l) no redemption fees or other charges will be charged by a Fund in respect of the redemption by a unitholder of a Fund of units of the Fund;

(m) no trailing fees will be payable in respect of a Fund’s investments in a specified Underlying Fund;

(n) the arrangements between or in respect of the Funds and the Underlying Funds will be such as to avoid the duplication of management fees and operating expenses;

(o) in the event of the provision of any notice to securityholders 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 unitholders of the corresponding Fund. All voting rights attached to the securities of the Underlying Fund which are owned by the Fund will be passed through to the unitholders of the Fund;

(p) in the event that a securityholders’ 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 unitholders of the Fund that holds securities of the Underlying Fund. Each unitholder will be entitled to direct a representative of the Fund to vote the Fund's holdings in the Underlying Fund in accordance with his or her direction. The representative of the Fund will not be permitted to vote the Fund's holdings in the Underlying Fund except to the extent the unitholders of the Fund so direct;

(q) as part of receiving the annual and, upon request, the semi-annual financial statements of the Funds, unitholders of a Fund will receive appropriate summary disclosure in the financial statements of the Funds in respect of the Funds’ holdings of securities of their corresponding Underlying Funds;

(r) copies of the simplified prospectus and annual information form, as well as the annual and semi-annual financial statements relating to each Underlying Fund may be obtained by a unitholder of the Funds upon request and without charge to the unitholder, and this fact will be disclosed in the Prospectus of the Funds.

DATED at Toronto, Ontario, this 12th day of October, 2000.


Morley P. Carscallen Robert W. Korthals
©2024 British Columbia Securities Commission