Exemption Orders (Discretionary)
PFSL INVESTMENTS CANADA LTD.
2001 BCSECCOM 1174
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Investment of virtually all assets of a mutual fund (excluding cash and cash equivalents held to meet redemptions and to pay management fees) in a specified third party managed mutual fund to implement a “passive” fund-of-fund structure. Exempted from the self-dealing and reporting requirements subject to certain specified conditions.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(b), 121(3), 126(a), 126(d) and 130
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA, BRITISH COLUMBIA, NEWFOUNDLAND & LABRADOR, NOVA SCOTIA, ONTARIO AND SASKATCHEWAN
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF PFSL INVESTMENTS CANADA LTD. AND
PRIMERICA CANADIAN MONEY MARKET PORTFOLIO 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, Newfoundland & Labrador and Nova Scotia (the “Jurisdictions”) has received an application (the “Application”) from PFSL Investments Canada Ltd. (“PFSL”) and Primerica Canadian Money Market Portfolio Fund (the “Top Fund”) for a decision by each Decision Maker (collectively, the “Decision”) pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following requirements and restrictions contained in the Legislation (the “Applicable Requirements”) shall not apply to the Top Fund, or PFSL, as the case may be, in respect of certain investments to be made by the Top Fund in the AGF Canadian Money Market Fund (the “Underlying Fund”):
(a) the requirement contained in the Legislation prohibiting the Top Fund from knowingly making or holding an investment in a person or company in which the Top Fund, alone or together with one or more related mutual funds, is a substantial security holder;
(b) the requirement contained in the Legislation requiring PFSL to file a report of the following:
i. every transaction of purchase or sale of securities between the Top 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, the Top Fund is a joint participant with one or more of its related persons or companies, in respect of the Top 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 PFSL to the Decision Makers that:
1. PFSL is a corporation incorporated under and governed by the laws of Ontario and is registered as a mutual fund dealer or equivalent under the securities legislation of each of the Jurisdictions. The head office of PFSL is located in Mississauga, Ontario.
2. The Top Fund is an open-ended unincorporated mutual fund trust governed by the laws of the province of Ontario.
3. PFSL is the manager, trustee, exclusive distributor, promoter and the registrar and transfer agent of the Top Fund and Royal Trust is the custodian of the Top Fund.
4. Units of the Top Fund and Underlying Fund are offered for sale on a continuous basis in the Jurisdictions pursuant to a simplified prospectus and annual information form (the “Prospectus”) receipted in each of the Jurisdictions.
5. The Top Fund and Underlying Fund are reporting issuers in each of the provinces and territories of Canada and are not in default of any requirements of the acts or rules applicable in each of the provinces and territories.
6. To achieve its investment objectives, the Top Fund will invest its net assets, excluding cash and cash equivalents held to meet redemptions and to pay management fees and other expenses, in securities of the Underlying Fund. The manager of the Underlying Fund has been chosen by PFSL 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 funds.
7. The simplifed prospectus of the Top Fund will describe the intent of the Top Fund to invest in the Underlying Fund in its investment objectives. The simplified prospectus for the Top Fund will also disclose the investment objectives, investment strategies, risks and restrictions of the Top Fund and the Underlying Fund, and the manager of the Underlying Fund.
8. The arrangements between or in respect of the Top Fund and the Underlying Fund will be such as to avoid the duplication of sales charges, redemption charges or management fees. The Top Fund will receive management fee distributions from the Underlying Fund and management fee rebates from the manager of the Underlying Fund. An incremental management fee borne by unitholders of the Top Fund is limited to 0.10%. The incremental management fee is warranted given the portfolio allocation and consolidated reporting services provided to investors in the Top Funds.
9. Except to the extent evidenced by this Decision and the specific approvals to be granted by the Decision Makers pursuant to National Instrument 81-102 (“NI 81-102”), the investments by the Top Fund in securities of the Underlying Fund will comply in all respects with the investments restrictions in the Legislation and in NI 81-102.
10. Unless the requested relief is granted,
i. the Top Fund would be prohibited from knowingly making and holding an investment in securities of the Underlying Fund to the extent that the Top Fund, either alone or in combination with other PFSL managed funds, is a substantial security holder of the Underlying Fund; and
ii. PFSL would be required to file reports respecting every purchase or sale of securities of the Underlying Fund by the Top Fund.
11. Each investment by the Top Fund in the Underlying Fund will be in the best interests of the Top Fund and will represent 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;
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 so as to prevent the Top Fund or PFSL, as the case may be, from making and holding investments by the Top Fund in securities of the Underlying Fund;
PROVIDED THAT IN RESPECT OF the investment by the Top Fund in securities of the Underlying Fund:
1. the Decision, as it relates to the jurisdiction of a Decision Maker, will terminate upon the coming into force 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 the Top Fund makes or holds an investment in the Underlying Fund, the following conditions are satisfied:
(a) the securities of both the Top Fund and the Underlying Fund 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 securities of the Underlying Fund is compatible with the fundamental investment objective of the Top Fund;
(c) the simplified prospectus of the Top Fund, describes the intent of the Top Fund to invest in the Underlying Fund and discloses the manager, the name of its portfolio adviser, the investment objectives and investment strategies of the Underlying Fund, and the risks associated with investing in the Underlying Fund;
(d) the Underlying Fund is not a mutual fund whose investment objective includes investing directly or indirectly in other mutual funds;
(e) if the Underlying Fund disclosed in the investment objectives of the simplified prospectus has been changed, securityholders of the Top Fund have given prior approval and the prospectus has been amended or a new simplified prospectus filed to reflect the change;
(f) there are compatible dates for the calculation of the net asset value of each of the Top Fund and the Underlying Fund for the purpose of the issue and redemption of the securities thereof;
(g) no sales charges are payable by the Top Fund in relation to its purchases of securities of the Underlying Fund;
(h) if redemption fees are charged by the Underlying Fund in respect of the redemption by the Top Fund of securities of the Underlying Fund owned by the Top Fund, the redemption fee will be paid by the Manager of the Top Fund and the amount of the redemption fee will be deducted from the proceeds of redemption prior to payment to the investor in the Top Fund and remitted to the Manager;
(i) no fees or charges, other than the redemption fees described in paragraph h, and the commissions and trailing fees disclosed in the Prospectus of the Top Fund, are paid by the Top Fund and the Underlying Fund, 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 Fund;
(j) the arrangements between or in respect of the Top Fund and the Underlying Fund will be such as to avoid the duplication of management fees;
(k) any notice provided to securityholders of the Underlying Fund as required by applicable laws or the constating documents of the Underlying Fund has been delivered by the Top Fund to its securityholders;
(l) all of the disclosure and notice material prepared in connection with a meeting of securityholders of the Underlying Fund and received by the Top Fund has been provided to its securityholders, the securityholders 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 Fund except to the extent the securityholders of the Top Fund have directed;
(m) in addition to receiving the annual and, upon request, the semi-annual financial statements, of the Top Fund, securityholders of the Top Fund have received appropriate summary disclosure in respect of the Top Fund’s holdings of securities of the Underlying Fund in the financial statements of the Top Fund; and
(n) to the extent that the Top Fund and the Underlying Fund do not use a combined simplified prospectus and annual information form containing disclosure about the Top Fund and the Underlying Fund, copies of the simplified prospectus and annual information form of the Underlying Fund have been provided upon request to securityholders of the Top Fund and the right to receive these documents is disclosed in the prospectus of the Top Fund.
DATED this 12th day of December, 2001.
Paul M. Moore Richard W. Korthals