CI Investments Inc. and United Financial Corporation - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - section 17.1 of National Instrument 81-106 -- exemption from the requirement that an investment fund may disclose its management expense ratio only if the management expense ratio is calculated for the financial year or interim period of the investment fund as set out in subsection 15.1(1) of NI 81-106 to permit funds to calculate and disclose the MER on the last business day of each month -- Applicants want relief in order to be able to calculate and disclose MER monthly due to a change in the expense structure of the funds -- the funds' MERs will be relatively fixed and predictable due to the new cost structure implemented whereby fixed percentage fees are incurred.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 15.1(1), 17.1.
April 24, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO,QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, NEWFOUNDLAND AND LABRADOR,
NORTHWEST TERRITORIES, NUNAVUT and YUKON
(the Jurisdictions)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
CI INVESTMENTS INC.
AND
UNITED FINANCIAL CORPORATION
(the Filers)
AND
THE FUNDS LISTED IN SCHEDULE "A"
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) granting relief under section 17.1 of National Instrument 81-106 (NI 81-106) from the requirement that an investment fund may disclose its management expense ratio only if the management expense ratio is calculated for the financial year or interim period of the investment fund as set out in subsection 15.1(1) of NI 81-106 in order to permit each Fund (as defined below) to calculate and disclose its management expense ratio (MER) as of the last business day of each month based on the cumulative period beginning on the first day of the Funds' fiscal year to the last business day of each month, as well as for its financial years and interim periods (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filers:
1. A Filer is the manager of each Existing Fund listed in Schedule "A" and may become the manager of other existing or future-created mutual funds (collectively, the Future Funds and, together with the Existing Funds, the Funds) that, at the time of reliance on the Requested Relief, have the attributes described in paragraphs 2 through 4 below.
2. Effective September 1, 2005 and with the approval of the securityholders of the Existing Funds where required, each Existing Fund changed its expense structure to replace the operating expenses charged to the Existing Funds with administration fees (the Administration Fees) that are calculated as fixed annual percentages of the net asset values of each class of securities of the Existing Funds. As a result, the Filers now bear all of the operating expenses of the Funds (other than certain taxes, borrowing costs and certain new governmental fees) (the Variable Operating Expenses) in return for the fixed Administration Fees.
3. Not included in the Variable Operating Expenses are (a) taxes of any kind charged directly to the Existing Funds (principally income tax and the Goods and Services Tax (GST) on their management fees and Administration Fees), (b) borrowing costs incurred by the Existing Funds from time to time, and (c) any new fees that may be introduced by a securities regulator or other governmental authority in the future that is calculated based on the assets or other criteria of the Existing Funds. For greater certainty, the purchase price of securities and other property acquired on behalf of the Existing Funds (including brokerage fees, commissions and service charges paid to purchase and sell such securities and property) are considered capital costs, not operating expenses, and therefore are not included in Variable Operating Expenses nor the MERs. Likewise, fees charged directly to investors are not included in the Variable Operating Expenses nor the MERs.
4. The Filers bear all taxes (such as GST and provincial sales taxes) charged to them for providing the goods, services and facilities included in the Variable Operating Expenses.
5. The change to the expense structure of the Existing Funds described above was implemented in order to provide investors in the Existing Funds with the certainty of relatively fixed and predictable MERs for all future years.
6. The expense structures of the Funds make their MERs relatively fixed and predictable, thereby ensuring the accuracy of the MERs regardless of the time periods over which they are calculated and the Filers are capable of accurately calculating each Fund's MER on the last business day of each month, as well as for the financial year and interim period of each Fund. Given this, the Filers believe that there would be no prejudice to investors to grant the Requested Relief.
7. The Filers will continue to calculate the MERs for the Funds in accordance with section 15.1 of NI 81-106 but for the purposes of paragraphs 15.1(1)(a) and (b) and subsection 15.1(2) of NI 81-106, the Filers will use a period beginning the first day of the Funds' fiscal year to the last business day of each month as the basis for the calculation, in addition to the financial year period and interim period.
Decision
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 under the Legislation is that the Requested Relief is granted.
Schedule "A"