National Instrument 81-106 Mutual Fund Continuous Disclosure, section 17.1 -- exemption from requirements in Section 4.4 and Items 3.1(1), 3.1(2), 3.1(7), 3.1(8), 4.1(1) in respect of the requirement to comply with sections 15.3(2) and 15.9(2)(d) of NI 81-102, 4.1(2), 4.2(1), 4.2(2), 4.3(1)(a) and 4.3(2) of Part B and Items 3(1) and 4 of Part C of Form 81-106F1 to permit the Trust Funds to include in their annual and interim management reports of fund performance the financial highlights and past performance of the Corporate Funds -- For purposes of disclosure of financial data in the management reports of fund performance, each Trust Fund will be indistinguishable from its corresponding Corporate Fund.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, s. 19.1.
National Instrument 81-106 Mutual Fund Continuous Disclosure, s. 17.1.
December 11, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
ING DIRECT ASSET MANAGEMENT LIMITED (the Manager)
ING DIRECT STREETWISE BALANCED
INCOME FUND, ING DIRECT STREETWISE
BALANCED FUND AND ING DIRECT
STREETWISE BALANCED GROWTH FUND
(the Trust Funds)
(collectively, the Filers)
The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting an exemption upon the occurrence of the Conversion from the following provisions of the Legislation to enable the Trust Funds to include in their annual and interim management reports of fund performance (MRFPs) the performance data and information derived from the financial statements (collectively, the Financial Data) of the ING DIRECT Streetwise Balanced Income Class, the ING DIRECT Streetwise Balanced Class and the ING DIRECT Streetwise Balanced Growth Class (the Corporate Funds) that are presented in the Corporate Funds' annual MRFP for the year ended December 31, 2008, when available (the Corporate Funds' 2008 annual MRFPs) (collectively, the Exemption Sought):
(a) Section 4.4 of National Instrument 81-106 -- Investment Fund Continuous Disclosure (NI 81-106) for the purposes of the relief requested from Form 81-106F1 -- Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1);
(b) Items 3.1(1), 3.1(2), 3.1(7), 3.1(8), 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.9(2)(d) of National Instrument 81-102 -- Mutual Funds (N1 81-102), 4.1(2), 4.2(1), 4.2(2), 4.3(1)(a) and 4.3(2) of Part B of Form 81-106F1; and
(c) Items 3(1) and 4 of Part C of Form 81-106F1.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut.
Terms defined in National Instrument 14-101 - Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined below:
This decision is based on the following facts represented by the Filers:
1. The Manager is registered as an investment counsel/portfolio manager in the province of Ontario, with its head office located in Toronto, Ontario.
2. The Manager is the manager and portfolio adviser of each of the Corporate Funds and the proposed trustee, manager and portfolio adviser of each of the Trust Funds.
3. Each of the Corporate Funds is represented by a class of shares (the Shares) of ING Direct Corporate Class Limited (the Corporation), a corporation formed under the Canada Business Corporations Act.
4. Shares of the Corporate Funds are currently qualified for sale in each of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form dated January 2, 2008, as amended by amendments to the simplified prospectus and annual information form dated May 30, 2008 and October 23, 2008 (collectively, the Corporate Funds' Prospectus).
5. The Corporation qualifies as a mutual fund corporation under the Income Tax Act (Canada).
6. The Corporation, as the issuer of the Shares of the Corporate Funds, is a reporting issuer under applicable securities legislation of each province and territory of Canada and is not on the list of defaulting reporting issuers in any of such jurisdictions.
7. Subject to obtaining the approval of the Canadian Securities Administrators (CSA) pursuant to an application for approval filed on October 20, 2008 and the approval of the shareholders (the Shareholders) of each of the Corporate Funds at a meeting to be held on January 9, 2009, the Filers propose to convert (the Conversion) the Corporate Funds into the Trust Funds by transferring, on or about January 9, 2009 (the Conversion Date), all or substantially all of the Corporation's assets to the Trust Funds in exchange for units of the Trust Funds.
8. The Manager is proposing the Conversion because the Trust Funds are expected to be more tax efficient than the Corporate Funds. This is primarily because the Trust Funds will not be required to pay income tax as long as they have distributed sufficient net income to their unitholders, whereas the Corporate Funds are required to pay tax on their net income and net realized capital gains against which they may apply a refund only in respect of tax related to Canadian source dividends and capital gains. The composition of the Corporate Funds (principally the relative size of the fixed income portfolios) together with the relatively low fees and expenses incurred by the Corporate Funds (1% of net asset value) mean that the Corporation could incur non-refundable income tax under the Tax Act.
9. The Filers have filed a preliminary simplified prospectus and preliminary annual information form dated October 20, 2008 with respect to the Trust Funds and will file a final simplified prospectus and annual information form in due course to qualify the units of the Trust Funds for distribution to the public.
10. The Manager does not intend to begin distribution of units of the Trust Funds prior to the Conversion.
11. The assets of the Corporation attributable to the ING DIRECT Streetwise Balanced Income Class will be transferred to the ING DIRECT Streetwise Balanced Income Fund. The number of units issued by the ING DIRECT Streetwise Balanced Income Fund will equal the number of ING DIRECT Streetwise Balanced Income Class shares of the Corporation immediately prior to the transfer. Similar transfers will take place for the other assets of the Corporation attributable to the other two Corporate Funds.
12. Also on the Conversion Date, the Corporation will redeem all the outstanding shares of each the Corporate Funds at their net asset value and transfer the units of the corresponding Trust Fund to its Shareholders as consideration for the redemption. Each ING DIRECT Streetwise Balanced Income Class Shareholder will receive units of the ING DIRECT Streetwise Balanced Income Fund corresponding to the number of Shares of the ING DIRECT Streetwise Balanced Income Class they hold in exchange for those Shares. A similar matching will occur for the Shareholders of the other two Corporate Funds.
13. The Manager intends to cease distribution of Shares of the Corporate Funds at the close of business on the day immediately preceding the Conversion Date and, accordingly, does not intend to renew the Corporate Funds' Prospectus. As soon as possible following the Conversion, the Corporation will be wound up.
14. The Trust Funds have been newly created for purposes of implementing the Conversion and have investment objectives and investment strategies that are identical to the investment objectives and investment strategies for the Corporate Funds. Accordingly, each Trust Fund will be indistinguishable from its corresponding Corporate Fund except for the fact that the former are units of a mutual fund trust and the latter are classes of shares of a mutual fund corporation.
15. The Trust Funds will be charged management fees and administration fees in amounts that are identical to the management fee and administration fee currently charged by the Manager in respect of the Corporate Funds.
16. The Trust Funds will have no financial or performance history (and no Financial Data) prior to the Conversion Date. The Trust Funds will prepare comparative interim and annual financial statements for 2009 under section 2.1 of NI 81-106 using the Corporate Funds' annual financial statements for the year ended December 31, 2008. In addition, the Manager proposes that the Trust Funds' MRFPs include the Financial Data presented in the Corporate Funds' 2008 annual MRFPs.
17. The Financial Data of the Corporate Funds is significant information which can assist investors in determining whether to purchase units of the Trust Funds. Accordingly, the Filers have filed a separate application for exemptive relief (the NI 81-101 and NI 81-102 Relief) from certain provisions of NI 81-102, NI 81-101 and Form 81-101F1 to permit:
(a) Each Trust Fund's sales communications and reports to securityholders (the Fund Communications) to include the Financial Data of the corresponding Corporate Fund;
(b) the Trust Funds' simplified prospectus:
(i) to incorporate by reference the following financial statements and management reports of fund performance (MRFPs) of the Corporate Funds (collectively, the Corporate Funds' Disclosure):
(1) the interim financial statements and MRFP for the six months ended June 30, 2008; and
(2) when available, the annual financial statements and MRFP for the year ended December 31, 2008
until such Corporate Fund Disclosure is superseded by more current financial statements and MRFPs of the Trust Funds;
(ii) to state that the start date for each Trust Fund is based upon the start date of the corresponding Corporate Fund; and
(iii) to disclose the Conversion where the start date for each Trust Fund is stated.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) the MRFP for each Trust Fund include the Financial Data of the corresponding Corporate Fund and disclose the Conversion for the relevant time periods;
(b) the Trust Funds prepare their simplified prospectus and other Fund Communications in accordance with the NI 81-102 and NI 81-101 Relief.