Investment by RSP fund in securities of another mutual fund that is under commonmanagement for specified purpose exempted from the reporting requirements and self-dealing prohibitions of section 101, clauses 111(2)(a) and (b) and clauses 117(1)(a)and (d).
Investment by the RSP Fund in forward contracts issued by related counterparties or itsaffiliates exempted from the requirements of subclause 111(2)(c)(ii) and 118(2)(a),subject to specified conditions.
Securities Act (Ontario), R.S.O. 1990 c.S.5, as am., ss. 101, 111(2)(a), 111(2)(b),111(2)(c), 117(1)(a), 117(1)(d) and 118(2)(a).
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MERRILL LYNCH INTERNET STRATEGIES RSP FUND, ATLAS ASSET MANAGEMENT INC.
WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, NovaScotia and Newfoundland (the "Jurisdictions") has received an application from Atlas AssetManagement Inc. ("Atlas"), as manager and trustee of the Merrill Lynch Internet StrategiesRSP Fund (the "RSP Fund") for a decision by each Decision Maker (collectively, the"Decision") under the securities legislation of the Jurisdictions (the "Legislation") that thefollowing provisions of the Legislation (the "Applicable Requirements") shall not apply tothe RSP Fund or Atlas, as the case may be, in respect of certain investments to be madeby the RSP Fund in Merrill Lynch Internet Strategies Fund (the "Underlying Fund"):
i. the provisions requiring a security holder to issue a news release and file a reportwhere its aggregate holdings of securities of a reporting issuer exceed ten percentof the outstanding voting or equity securities of the reporting issuer, and to refrainfrom acquiring or offering to acquire additional voting or equity securities of thereporting issuer for a specified period of time after the securityholder's holdingsexceed the 10% level;
ii. the provisions requiring the management company of a mutual fund to file a reportrelating to the purchase or sale of securities between the mutual fund and anyrelated person or company, or any transaction in which, by arrangement other thanan arrangement relating to insider trading in portfolio securities, the mutual fund isa joint participant with one or more of its related persons or companies;
iii. the provisions prohibiting a mutual fund from knowingly making and holding aninvestment in a person or company in which the mutual fund, alone or together withone or more related mutual funds, is a substantial security holder;
iv. the provision prohibiting a mutual fund from knowingly making and holding aninvestment in an issuer in which any person or company who is a substantialsecurity holder of the mutual fund, its management company or distributioncompany has a significant interest; and
v. the provision prohibiting a portfolio manager from knowingly causing an investmentportfolio managed by it to invest in any issuer in which a "responsible person" (asthat term is defined in the Legislation) is an officer or director, unless the specificfact is disclosed to the client and, if applicable, the written consent of the client tothe investment is obtained before the purchase.
AND WHEREAS under the Mutual Reliance Review System for Exemptive ReliefApplications (the "System"), the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS Atlas has represented to the Decision Makers as follows:
1. Atlas is a corporation incorporated under the laws of Canada and its head officeis located in Ontario. Atlas will be the manager, trustee, promoter and theportfolio manager of the RSP Fund and the Underlying Fund (collectively, the"Funds").
2. The Funds will be open-end mutual fund trusts established under the laws ofOntario. A preliminary simplified prospectus and a preliminary annualinformation (together the "Preliminary SP") have been filed and are currentlybeing reviewed in all of the provinces and territories of Canada (the "ProspectusJurisdictions") to qualify the distribution of units of the Funds in the ProspectusJurisdictions.
3. Once a receipt is issued for the (final) simplified prospectus and annualinformation form (together the "Prospectus") of the Funds, the Funds will becomereporting issuers under the Legislation of each of the Prospectus Jurisdictions(other than those jurisdictions which do not recognize reporting issuers).
4. Atlas has retained Merrill Lynch Asset Management LP as the portfolio sub-adviser of the Funds.
5. There may be directors and/or officers of Merrill Lynch Canada Inc. ("MerrillLynch") and its affiliates that are also directors and/or officers of Atlas and itsaffiliates.
6. The RSP Fund may enter into forward contracts with Merrill Lynch or its affiliates(the "Related Counterparties") as counterparty.
7. The Prospectus will contain disclosure with respect to the investment objective,investment practices and restrictions of the Funds. The investment objective ofthe RSP Fund is to seek long term growth of capital as a result of exposure toequity securities of issuers, located throughout the world, that use the Internet asa component of their business strategy through investment in forward contractsor other specified derivatives that are linked to the returns of the UnderlyingFund. The RSP Fund will invest in money market instruments and othersecurities, cash and bank deposits and will enter into forward contracts or otherspecified derivatives based on the portfolio securities of the Underlying Fund orthe units of the Underlying Fund. As part of its investment strategy, the RSPFund may invest in units of the Underlying Fund. All purchases of units of theUnderlying Fund will be made through Atlas as principal distributor of theUnderlying Fund.
8. The RSP Fund will make investments such that its units will be "qualifiedinvestments" for registered retirement savings plans, registered retirementincome funds and deferred profit sharing plans (collectively, the "RegisteredPlans") under the Income Tax Act (Canada) (the "Tax Act") and, based on anopinion of counsel to Atlas, will not constitute "foreign property" to a RegisteredPlan.
9. The direct investment by the RSP Fund in units of the Underlying Fund will be inan amount not to exceed the amount prescribed from time to time as themaximum permitted amount which may be invested in "foreign property" underthe Tax Act without the imposition of tax under Part XI of the Act (the "ForeignProperty Maximum").
10. The direct investments by the RSP Fund in the Underlying Fund will be withinthe Foreign Property Maximum (the "Permitted RSP Fund Investments"). Theamount of direct investment by the RSP Fund in the Underlying Fund will beadjusted from time to time so that, except for transitional cash, the aggregate ofderivative exposure to, and direct investment in the Underlying Fund will equal100% of the net assets of the RSP Fund.
11. The investment objective of the Underlying Fund is achieved through investmentprimarily in foreign securities.
12. Except to the extent evidenced by this Decision Document and specificapprovals granted by the securities regulatory authorities or regulators underNational Instrument NI 81-102 ("NI 81-102"), the investments by the RSP Fundin the Underlying Fund have been structured to comply with the investmentrestrictions of the Legislation and NI 81-102.
13. In the absence of this Decision, as soon as the aggregate holdings by the RSPFund of units of the Underlying Fund exceed 10% of the outstanding units of theRSP Fund, the RSP Fund would be required to comply with the reporting andother requirements of the Legislation.
14. In the absence of this Decision, the RSP Fund is prohibited from knowinglymaking and holding an investment in the Underlying Fund in which the RSPFund alone or together with one or more related mutual funds, is a substantialsecurityholder.
15. In the absence of this Decision, the RSP Fund is prohibited from knowinglymaking and holding an investment in securities of Merrill Lynch or any of itsaffiliates.
16. In the absence of this Decision, Atlas is required to file a report on everypurchase or sale of securities of Merrill Lynch or any of its affiliates.
17. In the absence of this Decision, the portfolio manager is prohibited from causingthe RSP Fund to invest in securities of Merrill Lynch or any of its affiliates unlessthe specific fact is disclosed to investors and, if applicable, the written consent ofinvestors is obtained before the purchase.
18. The RSP Fund's investment in or redemption of units of the Underlying Fund orinvestment in forward contracts issued by Merrill Lynch or any of its affiliatesrepresents the business judgment of responsible persons, uninfluenced byconsiderations other than the best interests of the RSP Fund.
AND WHEREAS under the System, this Decision Document evidences theDecision of each Decision Maker;
AND WHEREAS each Decision Maker is satisfied that the tests contained in theLegislation that provides the Decision Maker with the jurisdiction to make the Decisionhave been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that theApplicable Requirements shall not apply to the RSP Fund, Atlas or a portfolio sub-adviser, as the case may be, in respect of the investments to be made by the RSPFund in units of the Underlying Fund, or in forward contracts issued by Merrill Lynch orany one of its affiliates;
PROVIDED THAT IN RESPECT OF the investment by the RSP Fund in units ofthe Underlying Fund:
1. the Decision, as it relates to the jurisdiction of a Decision Maker, will terminateone year after the publication in final form of any legislation or rule of thatDecision Maker dealing with the matters in section 2.5 of National Instrument 81-102; and
2. the Decision shall apply only to investments in, or transactions with, theUnderlying Fund that are made by the RSP Fund in compliance with thefollowing conditions:
(a) the RSP Fund and the Underlying Fund are under common management,and the units of both are offered for sale in the jurisdiction of eachDecision Maker, pursuant to a prospectus that has been filed with andaccepted by the Decision Maker;
(b) the RSP Fund restricts its aggregate direct investment in units of theUnderlying Fund to a percentage of its assets that is within the ForeignProperty Maximum;
(c) the investment by the RSP Fund in units of the Underlying Fund iscompatible with the fundamental investment objectives of the RSP Fund;
(d) the Prospectus discloses the intent of the RSP Fund to invest in units ofthe Underlying Fund;
(e) the RSP Fund may change the Permitted RSP Fund Investment if itchanges its fundamental investment objective in accordance with theLegislation;
(f) no sales charges are payable by the RSP Fund in relation to purchases ofunits of the Underlying Fund;
(g) there are compatible dates for the calculation of the net asset value of theRSP Fund and the Underlying Fund for the purpose of issuing andredeeming units of both mutual funds;
(h) no redemption fees or other charges are charged by the Underlying Fundin respect of the redemption by the RSP Fund of units of the UnderlyingFund owned by the RSP Fund;
(i) the arrangements between or in respect of the RSP Fund and theUnderlying Fund are such as to avoid the duplication of managementfees;
(j) no fees and charges of any sort are paid by the RSP Fund, theUnderlying Fund, the manager or principal distributor of the RSP Fund orthe Underlying Fund, or by any affiliate or associate of any of theforegoing entities to anyone in respect of the RSP Fund's purchase,holding or redemption of the units of the Underlying Fund;
(k) in the event of the provision of any notice to unitholders of the UnderlyingFund, as required by applicable laws or the constating documents of theUnderlying Fund, the notice will also be delivered to the unitholders of theRSP Fund; all voting rights attached to the units of the Underlying Fundthat are owned by the RSP Fund will be passed through to the unitholdersof the RSP Fund;
(l) in the event that a meeting of the unitholders of the Underlying Fund iscalled, all of the disclosure and notice material prepared in connectionwith such meeting and received by the RSP Fund will be provided to theunitholders of the RSP Fund; each securityholder will be entitled to directa representative of the RSP Fund to vote that securityholder's proportionof the RSP Fund's holding in the Underlying Fund in accordance with hisor her direction; and the representative of the RSP Fund will not bepermitted to vote the RSP Fund's holdings in the Underlying Fund exceptto the extent the unitholders of the RSP Fund so direct;
(m) in addition to receiving the annual and (upon request) the semi-annualfinancial statements of the RSP Fund, unitholders of the RSP Fund willreceive the annual and (upon request) semi-annual financial statementsof the Underlying Fund, either in a combined report containing thefinancial statements of both the RSP Fund and the Underlying Fund, or ina separate report containing the financial statements of the UnderlyingFund;
(n) to the extent that the RSP Fund and the Underlying Fund do not use acombined simplified prospectus, annual information form and financialstatements containing disclosure about the RSP Fund and the UnderlyingFund, copies of the simplified prospectus, annual information form andfinancial statements relating to the Underlying Fund may be obtainedupon request by a securityholder of the RSP Fund.
AND PROVIDED THAT IN RESPECT OF the investment by the RSP Fund inforward contracts, the Decision applies to the investments in forward contracts of MerrillLynch, or an affiliate of Merrill Lynch, as counterparty that are made in compliance withthe following conditions:
(a) the pricing terms offered by the Related Counterparties to the RSP Fund underthe forward contracts are at least as favourable as the terms committed by theRelated Counterparties to other third parties, which are of similar size as theRSP Fund;
(b) prior to the RSP Fund entering into a forward contract transaction with a RelatedCounterparty, the independent auditors of the RSP Fund will review the pricingoffered by the Related Counterparty to the RSP Fund against the pricing offeredby the Related Counterparty to other fund groups offering RSP funds of similarsize, to ensure that the pricing is at least as favourable;
(c) the review by the independent auditors will be undertaken not less frequentlythan on a quarterly basis and, in addition, on every renewal or pricingamendment to each forward contract, during the term of such contract;
(d) the RSP Fund's Prospectus (and each renewal thereof) discloses theindependent auditors' role and their review of the forward contracts, as well asthe involvement of the Related Counterparties; and
(e) the RSP Fund will enter into forward contracts with Related Counterparties onlyonce confirmation of favourable pricing is received from the independentauditors of the RSP Fund.
March 28th, 2000.
"J. A. Geller" "R. Stephen Paddon"