Representatives of mutual fund dealer exempted from the implicit prohibition againstpayment of commission/fee rebates to clients who switch investments from one mutualfund to another mutual fund related to the dealer, subject to specified conditions.
National Instrument Cited
NI 81-105, ss. 7.1(a) & (b), 9.1(1) and Part
NATIONAL INSTRUMENT 81-105
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM OR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
SUNETCO INVESTMENT SERVICES INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, NovaScotia, New Brunswick, Prince Edward Island, Newfoundland, Yukon Territory,Northwest Territories and the Territory of Nunavut (the "Jurisdictions") has received anapplication, filed by Sunetco Investment Services Inc. ("Sunetco") on its own behalfand on behalf of its representatives from time to time, for a decision pursuant tosection 9.1 of National Instrument 81-105 ("NI 81-105") that the prohibition contained inclause 7.1(1)(b) of NI 81-105 against certain rebates of redemption commissions orfees ("Rebate" or "Rebates") shall not apply to Rebates payable by representatives ofSunetco to clients who switch their investments from third party products to othermutual funds managed by an affiliate of Sunetco;
AND WHEREAS under the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission is the principalregulator for this application;
AND WHEREAS Sunetco has represented to the Decision Makers as follows:
1. Sunetco is registered under the securities laws of each of the Jurisdictions in thecategory of mutual fund dealer, other than in the Province of Quebec, where itwas so registered until the coming into force of An Act respecting the distributionof financial products and services (Quebec) on October 1, 1999 and will beregistered thereunder, effective as of that date, as a firm in the sector of, amongothers, group savings plan brokerage. The head office of Sunetco is located inOntario.
2. Sunetco is a wholly owned subsidiary of Sun Life Assurance Company ofCanada ("SLA"), which also owns Spectrum United Mutual Funds Inc.("Spectrum") and MFS Institutional Advisors, Inc. ("MFS") and controls McLeanBudden Limited ("McLean Budden").
3. Because of its relationship to SLA, Sunetco is a member of the organization ofthe open-end mutual funds constituting the Spectrum United Mutual Funds (the"Spectrum Funds"), of which there are currently 37. Spectrum is the manager ofthe Spectrum Funds, and McLean Budden and MFS are portfolio advisers tocertain Spectrum Funds.
4. Sunetco is also a member of the organization of the open-end mutual fundsconstituting the McLean Budden Managed Funds (the "McLean BuddenFunds"), of which there are currently six. McLean Budden is the manager andportfolio adviser of the McLean Budden Funds.
5. The securities of all Spectrum Funds, other than, in certain circumstances, themoney market funds, may be purchased on a front-end or back-end salescharge basis. When an investor purchases securities of a Spectrum Fund onthe back-end sales charge basis, the investor does not pay a sales charge atthe time of purchase. However, a deferred sales charge ("DSC"), whichdiminishes annually as a percentage of the original cost of the Spectrum Fundsecurities so purchased, applies to the redemption of such securities during thefirst seven years after purchase, subject to an annual DSC-free redemptionallowance for a prescribed number of securities as disclosed in the prospectusof the Spectrum Funds.
6. No McLean Budden Fund is offered for distribution on the back-end salescharge basis.
7. Sunetco is a participating dealer in the distribution of most mutual funds inCanada, including the Spectrum Funds and the McLean Budden Funds.Sunetco is not a principal distributor for any Spectrum Fund, McLean BuddenFund or any other mutual fund.
8. Sunetco does not provide any incentive to any of its representatives forrecommending to their clients securities of the Spectrum Funds, McLean BuddenFunds or any other mutual fund family over those of another mutual fund family.
9. No representative of Sunetco has an equity interest in Sunetco or any othermember of the organization of the Spectrum Funds.
10. Unless the exemption applied for is granted, a client who effects an earlyredemption of mutual fund securities that are subject to a DSC and uses theproceeds thereof to purchase securities of a Spectrum Fund on the back-endsales charge basis could not have the benefit of a Rebate from a Sunetcorepresentative, while a client who uses the proceeds of such redemption topurchase securities of a mutual fund unrelated to Sunetco could have the benefitof a Rebate from the Sunetco representative.
AND WHEREAS under the System, this MRRS Decision Document evidencesthe decision of each Decision Maker (collectively, the "Decision");
THE DECISION of the Decision Makers under subsection 9.1(1) of NI 81-105 isthat the present and future representatives of Sunetco shall be exempt from theprohibition contained in clause 7.1(1)(b) of NI 81-105 against the payment of Rebates,to the extent necessary to permit Rebates to be paid by such representatives to clientswho purchase Spectrum Fund securities on a back-end sales charge basis, following anearly redemption of securities of another mutual fund that is unrelated to Sunetco,provided that
(a) in respect of each such Rebate to be paid by a Sunetco representative to aclient,
(i) the cost of such Rebate is borne by the representative, and no direct orindirect reimbursement or other compensation is payable by Sunetco orany other member of the organization of the Spectrum Funds to therepresentative, and
(ii) the representative and Sunetco comply with the provisions of clause7.1(1)(a) of NI 81-105;
(b) Sunetco complies with the disclosure and consent provisions of Part 8 of NI 81-105;
(c) the clients of Sunetco are advised, in advance, that any Rebate in connectionwith the reinvestment of the proceeds of an early redemption of the clients'mutual fund securities that are subject to DSC
(i) will be available to the clients regardless of the mutual fund securities inwhich such reinvestment is made; and
(ii) will not be conditional upon the purchase of Spectrum Fund securities;
(d) Sunetco's representatives are not, and shall not in the future be, subject toquotas (express or implied) in respect of the distribution of Spectrum Funds andshall continue to be entitled to offer competing products to their clients;
(e) neither Sunetco nor any of its affiliates shall provide any incentive (express orimplied) to any representative for recommending Spectrum Funds over thirdparty products; and
(f) this Decision shall cease to be operative with respect to a Decision Makerfollowing the entry into force of a rule of that Decision Maker, which replaces oramends section 7.1 of N1 81-105.
February 22nd, 2000.
"J. A. Geller" "R. Stephen Paddon"