Exemption Orders (Discretionary)
BURGUNDY BALANCED INCOME FUND
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from the early warning requirements and 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. 111, 114(2)(c), 120(1), 120(2), 121(2)(b), 121(3), 126(a), 126(d), 127(1)(a) and 130(b).
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO, BRITISH COLUMBIA AND ALBERTA
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF BURGUNDY ASSET MANAGEMENT LIMITED
AND
IN THE MATTER OF
BURGUNDY BALANCED INCOME FUND
BURGUNDY AMERICAN EQUITY FUND
BURGUNDY PARTNERS EQUITY RSP FUND
BURGUNDY FOUNDATION TRUST FUND
BURGUNDY PARTNERS' RSP FUND
BURGUNDY PARTNERS' FUND
BURGUNDY PENSION TRUST FUND
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the Provinces of Ontario, British Columbia and Alberta (the "Jurisdictions") has received an application filed by Burgundy Asset Management Limited ("Burgundy"), on its own behalf and on behalf of the Burgundy Balanced Income Fund, Burgundy American Equity Fund, Burgundy Partners Equity RSP Fund, Burgundy Foundation Trust Fund, Burgundy Partners’ RSP Fund, Burgundy Partners’ Fund and Burgundy Pension Trust Fund (collectively, the “Top Funds”), for a decision (the “Decision”) pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following provisions in the Legislation (the “Applicable Requirements”) shall not apply in connection with the investment by the Top Funds in one or more Other Burgundy Funds or Private Funds (as defined in paragraphs 1 and 2 below):
(a) the provision 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 securityholder (the “Self-Dealing Prohibitions”), and
(b) the provision requiring the management company of a mutual fund to file a report (the “Reporting Requirement”), within 30 days after the end of the month in which each transaction occurs, of
- (i) every purchase or sale of securities between the mutual fund and any related person or company, or
(ii) 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 under the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS Burgundy has represented to the Decision Makers as follows:
1. Burgundy is the manager of the Top Funds and also of the Burgundy Canadian Equity Fund, Burgundy Premium Yield Fund, Burgundy Bond Fund, Burgundy Money Market Fund, Burgundy U.S. Money Market Fund and Burgundy European Equity Fund (collectively, the “Other Burgundy Funds).
2. Burgundy is also the manager of the Burgundy Japan Fund and the Burgundy Smaller Companies Fund (the “Private Funds”).
3. Burgundy is registered with each of the Decision Makers as an adviser in the categories of investment counsel and portfolio manager (or their equivalent) and as a dealer in the category of mutual fund dealer (or its equivalent).
4. The head office of Burgundy is located in Ontario.
5. Each of the Top Funds and the Other Burgundy Funds is an open-ended mutual fund trust established under the laws of the Province of Ontario by Declaration of Trust. Except for Burgundy Pension Trust Fund, Burgundy U.S. Money Market Fund and Burgundy European Equity Fund (the “New Funds”), each of the Top Funds and the Other Burgundy Funds is a reporting issuer (or its equivalent) under the Legislation and is not in default of any requirement of the Legislation or the rules and regulations made thereunder.
6. Units of the Top Funds and the Other Burgundy Funds (other than the New Funds) are offered for sale pursuant to a simplified prospectus and annual information form dated April 5, 1999 (the “1999 Prospectus”). The lapse date of the 1999 Prospectus has been extended to June 8, 2000. For the purpose of renewing the 1999 Prospectus, a pro forma prospectus has been filed on May 9, 2000 and is currently under review by staff of all the Jurisdictions.
7. A preliminary prospectus dated May 9, 2000, which has been combined with the pro forma prospectus referred to in paragraph 6 above, has also been filed on May 9, 2000 to qualify the distribution to the public of units of the New Funds.
8. Burgundy had previously applied for and obtained, by order of the Ontario Securities Commission dated February 13, 1998 (the “Previous Order”), certain approvals and exemptions from the provisions set out in National Policy Statement No. 39 and the Securities Act (Ontario) to permit the Burgundy Balanced Income Fund and the Burgundy Partners’ RSP Fund (the “Applicant Funds”) to invest specified amounts in the Burgundy Bond Fund (the “Bond Fund”) and to permit a one time interfund trade between each of the Applicant Funds and the Bond Fund in order to implement the initial investment by the Applicant Funds in the Bond Fund.
9. Each Private Fund is an open-ended mutual fund trust established under the laws of the Province of Ontario by a Declaration of Trust. The Private Funds are not reporting issuers under the Legislation. However, each Private Fund complies with National Instrument 81-102 Mutual Funds (“NI 81-102”), other than in respect of incentive fees charged directly to investors, which do not comply with section 7.1 thereof. The incentive fee currently charged by the Private Funds has previously been negotiated with the direct investors in the Private Funds.
10. Units of the Private Funds are sold on an exempt basis through an offering memorandum.
11. As manager of the Top Funds, Burgundy determines the different asset classes that the Top Funds should either be invested in or have exposure to, in order to achieve their investment objectives. Given the relative size of the Top Funds, Burgundy believes that investing in units of Other Burgundy Funds and/or the Private Funds, which have acquired or will acquire such asset classes for their portfolios, would be a more efficient way of investing the assets of the Top Funds. The Other Burgundy Funds and/or the Private Funds become the vehicle through which the funds of investors in the Top Funds are gathered and invested in different but appropriate asset classes, which would provide the Top Funds the diversification they need at lower transaction costs.
12. Accordingly, Burgundy intends to cause each Top Fund to invest the following percentages of its net assets (the “Fixed Percentages”) in units of one or more of the Other Burgundy Funds and/or Private Funds listed in the 3rd column of the table below (the “Underlying Funds”) as follows:
| Top Fund | Fixed Percentage of Net Assets Until After Dec. 31/00 Dec. 31/00 |  | Underlying Fund |
| Burgundy Balanced Income Fund | 50% 4% 3% | 50% 5% 4% | Burgundy Bond Fund Burgundy Japan Fund Burgundy European Equity Fund |
| Burgundy Foundation Trust Fund | 35% 6% 6% 3% | 35% 8% 8% 3% | Burgundy Bond Fund Burgundy European Equity Fund Burgundy Japan Fund Burgundy Smaller Companies Fund |
| Burgundy Pension Trust Fund | 45% 6% 6% | 45% 8% 8% | Burgundy Bond Fund Burgundy European Equity Fund Burgundy Japan Fund |
| Burgundy Partners RSP Fund | 25% 5% 8% 8% | 25% 5% 8% 8% | Burgundy Bond Fund Burgundy Smaller Companies Fund Burgundy European Equity Fund Burgundy Japan Fund |
| Burgundy American Equity Fund | 10% | 10% | Burgundy Smaller Companies Fund |
| Burgundy Partners Fund | 10% 8% 8% | 10% 8% 8% | Burgundy Smaller Companies Fund Burgundy European Equity Fund Burgundy Japan Fund |
| Burgundy Partners Equity RSP Fund | 6% 6% | 8% 8% | Burgundy European Equity Fund Burgundy Japan Fund |
13. Burgundy sells units of the Top Funds and the Other Burgundy Funds only to clients, including Burgundy employees and their spouses (the “Burgundy Employees”), who have entered into investment management agreements that give Burgundy discretionary authority to invest the clients’ money. The minimum account size of any client (together with accounts of immediate family members), other than the Burgundy Employees, is $1,000,000 for taxable accounts and $500,000 for registered accounts. There is no minimum account size for clients who are Burgundy Employees. The Top Funds and the Other Burgundy Funds are not sold by any other dealer.
14. Except to the extent evidenced by this Decision and except for the specific exemptions granted by the Decision Makers pursuant to NI 81-102, the proposed investments by the Top Funds in the Underlying Funds have been or will be structured to comply with the investment restrictions of the Legislation and NI 81 - 102.
15. In the absence of this Decision, each of the Top Funds will be subject to the Self-Dealing Prohibitions, and Burgundy will be subject to the Reporting Requirement, of the Legislation.
16. The investment of the Top Funds in the Underlying Funds represents the business judgment of “responsible persons” (as defined in the Legislation), uninfluenced by considerations other than the best interests of the Top Funds.
AND WHEREAS under the System, this MRRS Decision Document evidences the Decision of each Decision Maker;
AND WHEREAS each Decision Maker 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 under the Legislation is that the Applicable Requirements shall not apply to the acquisition or redemption of the units of an Underlying Fund by a Top Fund, provided that
(a) 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 subsection 2.5(1) of NI 81-102; and
(b) this Decision shall only apply to investments by the Top Fund in units of an Underlying Fund, which are made in compliance with the following conditions:
- i. the Top Fund and the Underlying Fund are under common management;
ii. the investment by the Top Fund in units of the Underlying Fund is compatible with the Top Fund’s investment objectives;
iii. units of the Top Fund are sold to the public in the Jurisdiction of the Decision Makers pursuant to a simplified prospectus and annual information form (the “Prospectus”) that have been filed with and accepted by the Decision Makers;
iv. the Prospectus of the Top Fund discloses the intent to invest in the Underlying Fund, specifying the Fixed Percentages and identifying the Underlying Fund, and discloses the facts set out in subclauses vii and viii below, the voting rights of the Top Fund’s unitholders in respect of the Top Fund’s holdings in the Underlying Fund as set out in subclauses xvii and xviii below, and the availability (upon request) to the Top Fund’s unitholders of the disclosure documents and financial statements of the Underlying Fund as set out in subclause xx below;
v. if the Underlying Fund is one of the Other Burgundy Funds, the units of such Underlying Fund are sold to the public in the Jurisdiction of the Decision Makers pursuant to a simplified prospectus and annual information form that have been filed with and accepted by the Decision Makers;
vi. if the Underlying Fund is a Private Fund,
- A. the Prospectus of the Top Fund discloses, in addition to the disclosure required by subclause iv above, the investment objectives and investment strategies of the Private Fund and the risks associated with investment in the Private Fund, and also incorporates by reference into the Prospectus the financial statements of the Private Fund;
B. the Private Fund will at all times be in compliance with NI 81-102, except section 7.1 thereof in respect of incentive fees charged directly to investors other than the Top Fund;
C. the only investors in the Top Fund are or will be clients of Burgundy referred to in paragraph 13 above;
D. the Private Fund will not charge an incentive fee to the Top Fund;
- vii. the Top Fund’s investments in the Underlying Fund may deviate by no more than 2.5% (the “Permitted Percentage Deviation”) above or below the Fixed Percentages, but only as a result of market fluctuations and without any action being taken by Burgundy to increase or decrease the Top Funds’ investment within the Permitted Percentage Deviation.
viii. if at any time the investment of the Top Fund in the Underlying Fund exceeds (or declines below) the Permitted Percentage Deviation, Burgundy will make the necessary changes in the Top Fund’s investment portfolio at its next valuation date in order to bring its investment in the Underlying Fund up or down to the Fixed Percentages;
ix. the Fixed Percentages and the Underlying Funds in which the Top Fund may invest in, as disclosed in the Prospectus, will not be changed unless the Top Fund amends its Prospectus to reflect the proposed change or files a new prospectus reflecting such change, and the unitholders of the Top Fund are given at least 60 days’ prior written notice of the proposed change.
x. except as permitted by this Decision, the Top Fund will not invest in any other mutual fund;
xi. the Underlying Fund will not invest in another mutual fund;
xii. there are compatible dates for the calculation of the net asset value of the Top Fund and the Underlying Fund for the purpose of the issue and redemption of their respective units;
xiii. there will be no duplication of management fee resulting from the Top Fund’s investment in the Underlying Fund;
xiv. no sales charges will be paid by the Top Fund in respect of the purchase of units of the Underlying Fund;
xv. no redemption fees or other charges will be charged by anyone in respect of any redemption by the Top Fund of units of the Underlying Fund;
xvi. no fees or charges of any sort are charged by the Underlying Fund, or by an affiliate or associate of any of the foregoing entities, to anyone in respect of the investment by the Top Fund in the Underlying Fund;
xvii. if a notice is provided to the unitholders of the Underlying Fund, as required by applicable laws or by the constating documents of the Underlying Fund, such notice will also be delivered to the unitholders of the Top Fund if it has invested more than 10 percent of its net assets in the Underlying Fund, and all voting rights attached to the units of the Underlying Fund held by the Top Fund will be passed through to the Top Fund’s unitholders;
xviii. if a unitholders’ meeting is called for an Underlying Fund in which the Top Fund has invested more than 10% of its net assets, all of the disclosure and notice material prepared in connection with such meeting and received by the Top Fund will be provided to the unitholders of the Top Fund; such unitholders will be entitled to direct the trustee of the Top Fund to vote their pro rata share of the Top Fund’s holdings in the Underlying Fund in accordance with their direction; the trustee of the Top Fund shall not vote the Top Fund’s holdings in the Underlying Fund except to the extent that the unitholders of the Top Fund so direct;
xix. the annual and semi-annual financial statements of the Top Fund will include appropriate summary disclosure concerning the Top Fund's investment in the Underlying Fund; and
xx. unitholders of the Top Fund may obtain, upon request, a copy of the simplified prospectus and annual information form of the Underlying Fund (if it is one of the Other Burgundy Funds), or the offering memorandum of the Underlying Fund (if it is a Private Fund), and the annual and semi-annual financial statements of the Underlying Fund.
DATED at Toronto this 28th day of June, 2000.
J. A. Geller Stephen N. Adams