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SEI Investments Canada Company et al. - MRRS Decision
Headnote
Investment by mutual funds in a portfolio of specified mutual funds under common management exempted from the self-dealing prohibition in clause 111(2)(b) and subsection 111(3), and from reporting requirements of clauses 117(1)(a) and117(1)(d) subject to certain specified conditions.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990, c.S.5, as am. Ss.111(2)(b), 111(3), 117(1)(a) & (d).
IN THE MATTER OF
THE CANADIAN SECURITIES LEGISLATION
OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
ONTARIO, NOVA SCOTIA AND NEWFOUNDLAND
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR
EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
SEI INVESTMENTS CANADA COMPANY
AND
CORE BALANCED FUND
BALANCED GROWTH FUND
BALANCED INCOME FUND
BALANCED GROWTH PLUS FUND
DIVERSIFIED EQUITY FUND
GLOBAL EQUITY FUND
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the "Decision Maker") in each of theprovinces of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the "Jurisdictions") hasreceived an application (the "Application") from SEI Investments Canada Company ("SEI"), in its own capacity and onbehalf of Core Balanced Fund, Balanced Growth Fund, Balanced Income Fund, Balanced Growth Plus Fund, DiversifiedEquity Fund and Global Equity Fund (collectively, the "Top Funds", individually, the "Top Fund") for a decision (the"Decision") pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the following provisions of theLegislation (the "Applicable Requirements") shall not apply to the Top Funds or SEI, as the case may be, in respect ofcertain investments to be made by a Top Fund directly in a portfolio of selected mutual funds under commonmanagement comprised of the Class O Units of several or more of the following: the Canadian Equity Fund, theCanadian Small Company Equity Fund, the Canadian Fixed Income Fund, the S&P 500 Synthetic Index Fund, the S&PMidCap 400 Synthetic Index Fund, the International Synthetic Index Fund, the U.S. Large Company Equity Fund, theU.S. Small Company Equity Fund, the EAFE Equity Fund and the Emerging Markets Equity Fund (collectively, the"Underlying Funds", individually, the "Underlying Fund"):
(a) the provision prohibiting a mutual fund from knowingly making or holding an investment in a person or companyin which the mutual fund, alone or together with one or more related mutual funds, is a substantial securityholder; and
(b) the provision requiring a management company of a mutual fund, or in British Columbia, a mutual fundmanager, to file a report relating to a purchase or sale of securities between the mutual fund and any relatedperson or company, or any transaction in which, by arrangement other than an arrangement relating to insidertrading in portfolio securities, the mutual fund is a joint participant with one or more of its related persons orcompanies.
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 it has been represented by SEI to the Decision Makers that:
1. SEI is a corporation established under and governed by the laws of Nova Scotia and will be the manager andprincipal distributor of each of the Top Funds. The head office of SEI is located in Toronto, Ontario.
2. Each of the Top Funds and of the Underlying Funds will be an open-end mutual fund trust governed by the lawsof the province of Ontario. The securities of the Top Funds will be qualified for sale in each of the provincesand territories of Canada (the "Prospectus Jurisdictions") under a (final) simplified prospectus and annualinformation form that will be filed in each of the Prospectus Jurisdictions under SEDAR project number 341277(the "Prospectus").
3. The Top Funds will provide investors with a professionally managed portfolio designed to suit individual investorobjectives, risk tolerance and investment time horizons. Each of the Top Funds will seek to achieve itsinvestment objective by investing its assets, through the Underlying Funds, in Canadian equities, CanadianBonds and foreign equities with an investment approach that is consistent with the Top Fund's name.
4. As part of its investment strategy, each Top Fund will invest specified percentages (the "Fixed Percentages")of its assets (exclusive of cash and cash equivalents), as specified in the Prospectus, in the securities of theUnderlying Funds.
5. The Underlying Funds are reporting issuers in each of the Prospectus Jurisdictions and are not in default of anyof the requirements of the securities legislation of any of the Prospectus Jurisdictions. The securities of eachof the Underlying Funds, except for the securities of the Canadian Small Company Equity Fund, are currentlyqualified for distribution pursuant to simplified prospectuses and annual information forms filed in each of theProspectus Jurisdictions. The Canadian Small Company Equity Fund is currently offered to the public in theProspectus Jurisdictions by way of private placement but will be qualified for sale under a (final) simplifiedprospectus and annual information form that will be filed in each of the Prospectus Jurisdictions under SEDARproject number 341304.
6. The Underlying Funds are not invested in other mutual funds, except to the extent permitted by section 2.5 ofNational Instrument 81-102 Mutual Funds ("NI 81-102"). The Top Funds will not invest in any mutual fundwhose investment objective includes investing in other mutual funds.
7. It is proposed by SEI that the Fixed Percentages of assets invested by a Top Fund in the securities of theUnderlying Funds may not deviate more than 2.5% above or below the Fixed Percentages (the "PermittedRanges") to account for market fluctuations. SEI will review the investments made by each Top Fund insecurities of the Underlying Funds on a daily basis and will adjust them as needed to keep within the FixedPercentages.
8. In addition, the appropriateness of each Top Fund's selection of Underlying Funds and of the FixedPercentages will also be reviewed by SEI on an ongoing basis to ensure that a particular Underlying Fund orFixed Percentage continues to be appropriate for a Top Fund's investment objectives. SEI may, as the resultof that review, decide to change the Fixed Percentages in one or more Underlying Funds, remove an existingUnderlying Fund or add a new Underlying Fund. SEI will give security holders of the Top Funds 60 days' priornotice of any such change and amend the Prospectus to reflect any such change.
9. The Prospectus of the Top Funds will disclose the investment objectives, investment strategies, risks andrestrictions of the Top Funds and the Underlying Funds, the Fixed Percentages and the Permitted Ranges.
10. The arrangements between or in respect of a Top Fund and the Underlying Funds will be such as to avoid theduplication of management fees. Management fees will not be payable to an Underlying Fund by the TopFunds. No sales charges will be payable by a Top Fund in relation to its purchase of securities of an UnderlyingFund. No redemption fees or other charges will be charged by an Underlying Fund in respect of the redemptionby a Top Fund of securities of the Underlying Fund owned by such Top Fund.
11. Except to the extent evidenced by this Decision and specific approvals granted by the Decision Makerspursuant to NI 81-102, the investments by the Top Funds in securities of the Underlying Funds have been orwill be structured to comply with the investment restrictions of the Legislation and NI 81-102.
12. In the absence of this Decision, pursuant to the Legislation, each Top Fund is prohibited from knowingly makingor holding an investment in securities of the Underlying Funds to the extent that the Top Fund, either alone ortogether with one or more related mutual funds, is a substantial security holder of the Underlying Funds. As aresult, in the absence of this Decision, each Top Fund would be required to divest itself of any suchinvestments.
13. In the absence of this Decision, the Legislation requires SEI to file a report on every purchase or sale ofsecurities of the Underlying Funds by a Top Fund.
14. Each investment by the Top Funds in the securities of the Underlying Funds will represent the businessjudgment of "responsible persons" (as defined in the Legislation), uninfluenced by considerations other thanthe best interests of the Top Funds.
AND WHEREAS under the System, this MRRS Decision Document evidences the Decision of each DecisionMaker;
AND WHEREAS each Decision Maker is satisfied that the tests contained in the Legislation that provides theDecision 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 shallnot apply so as to prevent the Top Funds from investing in, or redeeming the securities of the Underlying Funds;
PROVIDED THAT IN RESPECT OF the investment by the Top Funds directly in securities of the UnderlyingFunds:
1. the Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that Decision Maker dealing with matters in section 2.5 of NI 81-102;and
2. the Decision shall only apply if, at the time a Top Fund makes or holds an investment in its Underlying Funds,the following conditions are satisfied:
(a) the securities of both the Top Funds and the Underlying Funds are being offered for sale in thejurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information formwhich have been filed with and accepted by the Decision Maker;
(b) the investment by a Top Fund in the Underlying Funds is compatible with the investment objective ofthe Top Fund;
(c) the Prospectus discloses the intent of the Top Funds to invest in securities of the Underlying Funds,the names of the Underlying Funds, the Fixed Percentages and the Permitted Ranges within whichsuch Fixed Percentages may vary;
(d) the investment objective of each Top Fund discloses that the Top Fund invests its assets (exclusiveof cash and cash equivalents) in securities of the Underlying Funds in accordance with the FixedPercentages disclosed in the Prospectus;
(e) the Underlying Funds are not mutual funds whose investment objective includes investing directly orindirectly in other mutual funds;
(f) the Top Funds' holdings of securities of the Underlying Funds do not deviate from the PermittedRanges;
(g) any deviation from the Fixed Percentages is caused by market fluctuations only;
(h) if an investment by a Top Fund in any of the Underlying Funds has deviated from the PermittedRanges as a result of market fluctuations, the Top Fund's investment portfolio was re-balanced tocomply with the Fixed Percentages on the next day on which the net asset value was calculatedfollowing the deviation;
(i) if the Fixed Percentages and the Underlying Funds which are disclosed in the Prospectus have beenchanged, either the Prospectus has been amended in accordance with securities legislation to reflectthis significant change, or a new simplified prospectus reflecting the significant change has been filedwithin ten days thereof, and the security holders of the Top Fund have been given at least 60 days'notice of the change;
(j) there are compatible dates for the calculation of the net asset value of the Top Funds and theUnderlying Funds for the purpose of the issue and redemption of the securities of such mutual funds;
(k) no sales charges are payable by the Top Funds in relation to their purchases of securities of theUnderlying Funds;
(l) no redemption fees or other charges are charged by an Underlying Fund in respect of the redemptionby a Top Fund of securities of the Underlying Fund owned by the Top Fund;
(m) no fees or charges of any sort are paid by a Top Fund and the Underlying Funds, by their respectivemanagers or principal distributors, or by any affiliate or associate of any of the foregoing entities, toanyone in respect of the purchase, holding or redemption by a Top Fund of the securities of theUnderlying Funds;
(n) the arrangements between or in respect of the Top Funds and the Underlying Funds are such as toavoid the duplication of management fees;
(o) any notice provided to security holders of an Underlying Fund, as required by applicable laws or theconstating documents of that Underlying Fund, has been delivered by a Top Fund to its securityholders;
(p) all of the disclosure and notice material prepared in connection with a meeting of security holders ofan Underlying Fund and received by a Top Fund has been provided to its security holders, the securityholders have been permitted to direct a representative of the Top Fund to vote its holdings in theUnderlying Fund in accordance with their direction, and the representative of the Top Fund has notvoted its holdings in the Underlying Funds except to the extent the security holders of the Top Fundhave directed;
(q) in addition to receiving the annual and, upon request, the semi-annual financial statements, of a TopFund, security holders of the Top Funds have received appropriate summary disclosure in respect ofthe Top Fund's holdings of securities of the Underlying Funds in the financial statements of each TopFund; and
(r) to the extent that the Top Funds and the Underlying Funds do not use a combined simplifiedprospectus and annual information form containing disclosure about the Top Funds and theUnderlying Funds, copies of the simplified prospectus and annual information form of the UnderlyingFunds have been provided upon request to security holders of the Top Funds and the right to receivethese documents is disclosed in the Prospectus of the Top Funds.
May 16, 2001.
"Howard I. Wetston" "Robert W. Davis"