Securities Law & Instruments

Headnote

Merger of pooled funds into conventional mutual funds exempted from the reporting requirements and self-dealing prohibitions of clauses 111(2)(b), 111(3), 117(1)(a) and 118(2)(b) of the Act.

Statutes Cited

Securities Act (Ontario), R.S.O. 1990, c. S.5, 111(2)(b), 111(3), 117(1)(a), 118(2)(b).

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

ONTARIO, NOVA SCOTIA, AND NEWFOUNDLAND

AND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

FIRST ASSOCIATES INVESTMENTS INC.

AND

ROCKWATER ASSET MANAGEMENT INC.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland and Labrador, (the "Jurisdictions") has received an application from First Associates Investments Inc. ("FAI"), who is the manager of the Disciplined Leadership RSP Equity Fund, the Disciplined Leadership RSP High Income Fund and the Disciplined Leadership Multifund (being the Canadian Equity Pool, the U.S. Equity Pool and the High Income Pool) (the "Terminating Funds") and from Rockwater Asset Management Inc. ("Rockwater", and with FAI, the "Applicants") who will be the manager of the Disciplined Leadership Canadian Equity Fund, the Disciplined Leadership High Income Fund and the Disciplined Leadership U.S. Equity Fund (the "Continuing Funds", and together with the Terminating Funds, the "Funds") for a decision of each of the Decision Makers (collectively, the "Decision") pursuant to the securities legislation of the Jurisdictions (the "Legislation") that, for the purpose of the merger transactions described below (the "Mergers"), the Applicants and the Funds be exempt from the requirements provided for by the Legislation with respect to:

(a) the restrictions contained in the Legislation where applicable prohibiting a mutual fund from knowingly making or holding an investment in any person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial security holder;

(b) the requirements contained in the Legislation requiring a management company or a mutual fund manager, to file a report in connection with every transaction of purchase and sale of securities between a mutual fund and a related person or company; and

(c) the restrictions contained in the Legislation prohibiting a portfolio manager or a mutual fund, from knowingly causing a mutual fund to purchase or sell the securities of any issuer from or to the account of a responsible person, or any associate of a responsible person or the portfolio manager.

AND WHEREAS the above restrictions of the Legislation shall be referred to in this Decision Document as the "Applicable Legislation";

AND WHEREAS, unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definitions;

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS the Applicant has represented to the Decision Maker that:

1. FAI is a corporation governed by the laws of the Province of Ontario. FAI is registered as a broker and investment dealer (equities, options and managed accounts) and is a member of the Investment Dealers Association of Canada.

2. Rockwater is a corporation governed by the laws of the Province of Ontario. Rockwater is registered as an advisor in the categories of investment counsel and portfolio manager in Ontario.

3. Rockwater and FAI are affiliated companies because both companies are wholly owned subsidiaries of Rockwater Capital Corporation.

4. FAI is the manager and portfolio manager of the Terminating Funds. Rockwater will be the manager and portfolio manager of the Continuing Funds.

5. Each of the Terminating and Continuing Funds is or will be an open-end mutual fund trust established under the laws of Ontario by declaration of trust or trust agreement.

6. Units of the Terminating Funds are distributed on a private placement basis only pursuant to available prospectus exemptions in each of the provinces and territories of Canada.

7. The Continuing Funds have filed an amended and restated preliminary simplified prospectus and annual information form each dated April 23, 2004 (collectively, the "Prospectus") in each of the provinces of Canada under SEDAR Project #599115 to qualify Series A, F and O units (the "Units"). It is anticipated that following receipt of a decision document for the (final) Prospectus and the completion of the Mergers, Series A, F and O Units of the Continuing Funds will be distributed to the public on a continuous basis in each of the provinces of Canada.

8. The Applicants wish to merge Disciplined Leadership RSP Equity Fund and the Canadian Equity Pool of the Disciplined Leadership Multifund into the Disciplined Leadership Canadian Equity Fund, the U.S. Pool of the Disciplined Leadership Multifund into the Disciplined Leadership U.S. Equity Fund and the Disciplined Leadership RSP High Income Fund and the High Income Pool of the Disciplined Leadership Multifund into the Disciplined Leadership High Income Fund.

9. The Mergers would occur through the implementation of the following steps:

(a) each Terminating Fund will transfer all of its portfolio assets (which would consist of portfolio securities and cash), less an amount required to satisfy the liabilities of the Terminating Fund, to its corresponding Continuing Fund in exchange for Series A Units of the Continuing Fund;

(b) immediately following the above-noted transfer, each Terminating Fund will distribute its portfolio assets (which would consist solely of Series A Units of the applicable Continuing Fund) to its unitholders on a dollar-for-dollar basis so that they will become direct unitholders of the corresponding Continuing Fund;

(c) forthwith, each Terminating Fund will be wound-up.

10. No sales charges or fees will be payable in connection with the acquisition by a Terminating Fund or its unitholders of Series A Units of the applicable Continuing Fund.

11. No sales charges or fees will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of the applicable Terminating Fund.

12. The Applicants will be responsible for all of the costs associated with the Mergers and such costs will not be charged to the Terminating Funds, the Continuing Funds or their respective unitholders.

13. The investment objectives of each of the Terminating Funds are substantially similar to those of the Continuing Fund with which the Terminating Fund is to merge. Therefore, the investment portfolio of the Terminating Funds that are to be acquired by the Continuing Funds are appropriate investments for the Continuing Funds and, following completion of the Merger, the Continuing Funds will be invested in accordance with the investment objectives.

14. Pending approval by the applicable Jurisdictions, the individuals principally responsible for the investment management of the Terminating Funds are the same people who will be principally responsible for the investment management of the Continuing Funds.

15. Notice of the Mergers, as applicable, was sent to the unitholders of the Terminating Funds on April 27, 2004, together with a copy of the amended and restated preliminary simplified prospectus of the Continuing Funds.

16. The Mergers will not proceed until the 60th day following the date of notice and unitholders in each Terminating Fund will be entitled to redeem units of the Terminating Funds up to the end of business on the day that is the day prior to the merger date.

17. In the absence of the Decision, the Applicable Legislation prohibits the Terminating Funds from knowingly making or holding an investment in the Continuing Funds because each of the Terminating Funds will be a substantial security holder of its applicable Continuing Fund, for a moment in time.

18. In the absence of this Decision, the Applicable Legislation prohibits the Applicants from knowingly causing the purchase of the portfolio securities of the Terminating Funds by the Continuing Funds because the FAI is a "responsible person" and the Continuing Funds are "associates" of a "responsible person", being Rockwater, an affilate of FAI.

19. In the absence of this Decision, the Applicable Legislation requires the Applicants to file a report in connection with the purchase by each Terminating Fund of Series A Units of its corresponding Continuing Fund and the sale of the portfolio securities of the Terminating Funds to the applicable Continuing Funds as the Terminating Funds and Continuing Funds are "related persons" under the legislation.

AND WHEREAS under the System, this Decision evidences the decision of each Decision Maker;

AND WHEREAS each of the Decision Makers is satisfied that the test 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 pursuant to the Legislation is that the Applicable Legislation does not apply to the Mergers, provided that immediately following the Mergers, all assets of the Terminating Funds, being the Series A Units of the Continuing Funds, are distributed to the unitholders in such Terminating Fund, and that the Terminating Funds are thereafter wound-up without further notice to unitholders.

June 8, 2004.

"Paul M. Moore"
"Suresh Thakrar"