Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption to allow dealer managed mutual funds to invest in securities of an issuer during the distribution and the 60 days after the distribution period in which an affiliate of the dealer manager has acted as an underwriter in connection with the distribution of securities of the issuer. -- The conflict is mitigated by the oversight of an independent review committee -- Conditions included to reflect transition of oversight function from current independent committee to independent 'review' committee to be established during the 60-day period and compliant with the provisions of National Instrument 81-107 Independent Review Committee for Investment Funds in force November 1, 2006.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.

March 5, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, AND THE

NORTHWEST TERRITORIES, NUNAVUT

AND THE YUKON

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM ("MRRS")

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

CIBC ASSET MANAGEMENT INC.,

CIBC GLOBAL ASSET MANAGEMENT INC. AND

SCOTIA CASSELS INVESTMENT COUNSEL LIMITED

(the "Applicants")

 

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 Applicants (each a "Dealer Manager"), on behalf of the mutual funds named in Appendix "A" (the "Funds" or "Dealer Managed Funds") for which the Applicants act as manager or portfolio adviser or both, for a decision under section 19.1 of National Instrument 81-102 Mutual Funds ("NI 81-102") for:

    • an exemption from subsection 4.1(1) of NI 81-102 to enable the Dealer Managed Funds to invest in REIT units, series A (the "Units") of Dundee Real Estate Investment Trust (the "Issuer") during the period of distribution for the Offering (as defined below) (the "Distribution") and during the 60-day period following the completion of the Distribution (the "60-Day Period"), and ending on the earlier of (i) the end of the 60-Day Period and (ii) the end of the day prior to a Dealer Manager providing the principal regulator with a notice (the "Notice") of intention to comply with National Instrument 81-107 Independent Review Committee for Investment Funds ("NI 81-107") pursuant to section 8.2 of that instrument (the "Prohibition Period"), notwithstanding that the Dealer Managers or their associates or affiliates act or have acted as an underwriter in connection with the offering (the "Offering") of Units pursuant to a short form prospectus dated February 16, 2007 filed in accordance with the securities legislation of each of the provinces of Canada (the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission (the "OSC") 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 meanings in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Applicants:

1. Each Dealer Manager is a "dealer manager" with respect to its Dealer Managed Funds, and each Dealer Managed Fund is a "dealer managed mutual fund", as such terms are defined in section 1.1 of NI 81-102.

2. The securities of the Dealer Managed Funds are qualified for distribution in one or more of the provinces and territories of Canada pursuant to simplified prospectuses that have been prepared and filed in accordance with their respective securities legislation.

3. The head offices of each of the Dealer Managers are in Toronto, Ontario, except for the head office of CIBC Global Asset Management Inc., which is located in Montréal, Québec.

4. As disclosed in the Issuer's preliminary short form prospectus dated February 16, 2007 (the "Preliminary Prospectus"), the Issuer is a provider of high quality, affordable business premises. The Issuer focuses on owning, acquiring, leasing and managing mid-sized urban and suburban office and industrial properties in Canada.

5. According to the Preliminary Prospectus, the Offering was underwritten, subject to certain terms, by an underwriting syndicate which includes CIBC World Markets Inc. and Scotia Capital Inc. (each a "Related Underwriter", and any other underwriters which are now or may become part of the syndicate, the "Underwriters"). Each Related Underwriter is an affiliate of one or more of the Dealer Managers.

6. According to the Preliminary Prospectus, the Offering is comprised of 3,700,000 Units at a price of $40.75 per Unit with gross proceeds of $150,775,000. The Issuer has granted the Underwriters an option, exercisable at $40.75 per Unit, for a period of up to 30 days following the closing of the offering, which is expected to occur on March 12, 2007 (the "Closing Date") to purchase up to an additional 15% of the Offering (the "Over-Allotment Option"). The Over-Allotment Option, if exercised, represents an additional 555,000 Units and additional gross proceeds of $22,616,250.

7. According to the Preliminary Prospectus, the net proceeds of the Offering will be used for general trust purposes, including for funding strategic acquisitions.

8. According to the Preliminary Prospectus, the Issuer's outstanding Units are listed on the TSX under the symbol "D.UN". The Issuer has applied to list the Units which are offered in connection with the Offering on the TSX.

9. The Preliminary Prospectus does not disclose that the Issuer is a "related issuer" or "connected issuer" as defined in National Instrument 33-105 -- Underwriting Conflicts ("NI 33-105"), of the Related Underwriter.

10. Despite the affiliation between the Dealer Managers and the Related Underwriters, each Dealer Manager operates independently of its Related Underwriter. In particular, the investment banking and related dealer activities of the Related Underwriters and the investment portfolio management activities of each of their respective Dealer Managers are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:

(a) in respect of compliance matters (for example, each Dealer Manager and its Related Underwriter may communicate to enable the Dealer Manager to maintain up to date restricted-issuer lists to ensure that the Dealer Manager complies with applicable securities laws); and

(b) each Dealer Manager and its Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.

11. The Dealer Managed Funds are not required or obligated to purchase any Units during the Prohibition Period.

12. The Dealer Managers may cause the Dealer Managed Funds to invest in the Units during the Prohibition Period. Any purchase of the Units by a Dealer Managed Fund will be consistent with the investment objectives of the Dealer Managed Funds and represent the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Funds or in fact be in the best interests of the Dealer Managed Funds.

13. To the extent that the same portfolio manager or team of portfolio managers of a Dealer Manager manages two or more Dealer Managed Funds and other client accounts that are managed on a discretionary basis (the "Managed Accounts"), the Units purchased for them will be allocated:

(a) in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for its Dealer Managed Funds and Managed Accounts, and

(b) taking into account the amount of cash available to each Dealer Managed Fund for investment.

14. Each Dealer Manager has not been involved in the work of its Related Underwriter and each Related Underwriter has not been and will not be involved in the decisions of its Dealer Manager as to whether the Dealer Managed Funds will purchase Units during the Prohibition Period.

15. There will be an independent committee (the "Independent Committee") appointed in respect of the Dealer Managed Funds to review the investments of each Dealer Managed Fund in the Units during the Prohibition Period.

16. The Independent Committee will have at least three members and every member must be independent. A member of the Independent Committee is not independent if the member has a direct or indirect material relationship with its Dealer Manager, the Dealer Managed Funds, or any affiliate or associate thereof. For the purpose of this Decision, a material relationship means a relationship which could, in the view of a reasonable person, reasonably interfere with the exercise of the member's independent judgment regarding conflicts of interest facing the Dealer Manager.

17. The members of the Independent Committee will exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in their respective Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

18. If a Dealer Manager files a Notice during the 60-Day Period, the Dealer Managed Funds will no longer be able to rely on this Decision and will only be able to make further investments in the Units during the remainder of the 60-Day Period in compliance with NI 81-107, including compliance with an applicable standing instruction under NI 81-107.

19. Each Dealer Manager, in respect of its Dealer Managed Funds, will notify a member of staff in the Investment Funds Branch of the Ontario Securities Commission, of the filing of the SEDAR Report on SEDAR, as soon as practicable after the filing of such a report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.

Decision

Each of the Decision Makers has assessed the conflict of interest risks associated with granting an exemption in this instance from subsection 4.1(1) of NI 81-102 and is satisfied that, at the time this Decision is granted, the potential risks are sufficiently mitigated.

Each of the Decision Makers is satisfied that the test contained in NI 81-102 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, notwithstanding that the Related Underwriters act or have acted as underwriters in the Offering provided that, in respect of each Dealer Manager and its Dealer Managed Funds, the following conditions are satisfied:

I. At the time of each purchase of Units (a "Purchase") by a Dealer Managed Fund pursuant to this Decision, the following conditions are satisfied:

(a) the Purchase

(i) represents the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or

(ii) is, in fact, in the best interests of the Dealer Managed Fund;

(b) the Purchase is consistent with, or is necessary to meet, the investment objective of the Dealer Managed Fund as disclosed in its simplified prospectus; and

(c) the Dealer Managed Fund does not place the order to purchase, on a principal or agency basis, with its Related Underwriter;

II. Prior to effecting any Purchase pursuant to this Decision, the Dealer Managed Fund has in place written policies or procedures to ensure that,

(a) there is compliance with the conditions of this Decision; and

(b) in connection with any Purchase,

(i) there are stated factors or criteria for allocating the Units purchased for two or more Dealer Managed Funds and other Managed Accounts, and

(ii) there is full documentation of the reasons for any allocation to a Dealer Managed Fund or Managed Account that departs from the stated allocation factors or criteria;

III. The Dealer Manager does not accept solicitation by its Related Underwriter for the Purchase of Units for the Dealer Managed Funds;

IV. The Related Underwriter does not purchase Units in the Offering for their own account except Units sold by the Related Underwriter on Closing;

V. Each Dealer Managed Fund has an Independent Committee to review the Dealer Managed Funds' investments in the Units during the Prohibition Period;

VI. The Independent Committee has a written mandate describing its duties and standard of care which, at a minimum, sets out the applicable conditions of this Decision;

VII. The members of the Independent Committee exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances;

VIII. The Dealer Managed Fund does not relieve the members of the Independent Committee from liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above;

IX. Until a Notice is provided to the principal regulators, the Dealer Managed Fund does not incur the cost of any portion of liability insurance that insures a member of the Independent Committee for a liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above;

X. The cost of any indemnification or insurance coverage paid for by the Dealer Manager, any portfolio manager of the Dealer Managed Funds, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Funds to indemnify or insure the members of the Independent Committee in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above is not paid either directly or indirectly by the Dealer Managed Funds;

XI. Each Dealer Manager files a certified report on SEDAR (the "SEDAR Report") in respect of each Dealer Managed Fund, no later than 30 days after the end of the 60-Day Period; provided however that if a Dealer Manager files a Notice during the 60-Day Period, the SEDAR Report shall be filed concurrently with the Notice being provided to the principal regulator. The SEDAR Report shall contain a certification by the Dealer Manager that contains:

(a) the following particulars of each Purchase:

(i) the number of Units purchased by the Dealer Managed Fund;

(ii) the date of the Purchase and purchase price;

(iii) whether it is known whether any underwriter or syndicate member has engaged in market stabilization activities in respect of the Units;

(iv) if the Units were purchased for two or more Dealer Managed Funds and other Managed Accounts of the Dealer Manager, the aggregate amount so purchased and the percentage of such aggregate amount that was allocated to each Dealer Managed Fund; and

(v) the dealer from whom the Dealer Managed Fund purchased the Units and the fees or commissions, if any, paid by the Dealer Managed Fund in respect of such Purchase;

(b) a certification by the Dealer Manager that the Purchase:

(i) was made free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any a associate or affiliate thereof; and

(ii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interest of the Dealer Managed Fund, or

(iii) was, in fact, in the best interests of the Dealer Managed Fund;

(c) confirmation of the existence of the Independent Committee to review the Purchase of the Units by the Dealer Managed Funds, the names of the members of the Independent Committee, the fact that they meet the independence requirements set forth in this Decision, and whether and how they were compensated for their review;

(d) a certification by each member of the Independent Committee that after reasonable inquiry the member formed the opinion that the policies and procedures referred to in Condition II(a) above are adequate and effective to ensure compliance with this Decision and that the decision made on behalf of each Dealer Managed Fund by the Dealer Manager to purchase Units for the Dealer Managed Funds and each Purchase by the Dealer Managed Fund:

(i) was made in compliance with the conditions of this Decision;

(ii) was made by the Dealer Manager free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and

(iii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or

(iv) was, in fact, in the best interests of the Dealer Managed Fund.

XII. The Independent Committee, or, if a Notice has been provided to the principal regulator during the 60-Day Period, an independent review committee established under NI 81-107, advises the Decision Makers in writing of:

(a) any determination by it that the condition set out in paragraph XI(d) has not been satisfied with respect to any Purchase of the Units by a Dealer Managed Fund;

(b) any determination by it that any other condition of this Decision has not been satisfied;

(c) any action it has taken or proposes to take following the determinations referred to above; and

(d) any action taken, or proposed to be taken, by the Dealer Manager or a portfolio manager of a Dealer Managed Fund, in response to the determinations referred to above.

XIII. For Purchases of Units during the Distribution only, each Dealer Manager:

(a) expresses an interest to purchase on behalf of Dealer Managed Funds and Managed Accounts a fixed number of Units (the "Fixed Number") to an Underwriter other than its Related Underwriter;

(b) agrees to purchase the Fixed Number or such lesser amount as has been allocated to the Dealer Manager no more than five (5) business days after the closing of the Offering;

(c) does not place an order with an underwriter of the Offering to purchase an additional number of Units under the Offering prior to the completion of the Distribution, provided that if the Dealer Manager was allocated less than the Fixed Number at the time of the closing of the Offering for the purposes of the Closing, the Dealer Manager may place an additional order for such number of additional Units equal to the difference between the Fixed Number and the number of Units allotted to the Dealer Manager at the time of the closing of the Offering in the event the Underwriters exercise the Over-Allotment Option; and

(d) does not sell Units purchased by the Dealer Manager under the Offering, prior to the listing of Units on the TSX.

XIV. Each Purchase of Units during the 60-Day Period is made on the TSX.

XV. For Purchases of Units during the 60-Day Period only, an underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in Ontario Securities Commission Rule 48-501, Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.

"Rhonda Goldberg"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission

 

APPENDIX "A"

THE MUTUAL FUNDS

Imperial Pools

Imperial Canadian Dividend Income Pool

Imperial Canadian Dividend Pool

Imperial Canadian Equity Pool

Imperial Canadian Income Trust Pool

Renaissance Talvest Mutual Funds

Renaissance Canadian Balanced Fund

Renaissance Canadian Balanced Value Fund

Renaissance Canadian Core Value Fund

Renaissance Canadian Dividend Income Fund

Renaissance Canadian Growth Fund

Renaissance Canadian Monthly Income Fund

Renaissance Canadian Small Cap Fund

Renaissance Diversified Income Fund

Talvest Cdn. Asset Allocation Fund

Talvest Cdn. Equity Value Fund

Talvest Dividend Fund

Talvest Millennium High Income Fund

Talvest Millennium Next Generation Fund

Talvest Small Cap Cdn. Equity Fund

CIBC Mutual Funds and CIBC Family of Managed Portfolios

CIBC Balanced Fund

CIBC Balanced Index Fund

CIBC Canadian Equity Fund (formerly CIBC Core Canadian Equity Fund)

CIBC Canadian Equity Value Fund (formerly Canadian Imperial Equity Fund)

CIBC Canadian Real Estate Fund

CIBC Canadian Small Companies Fund

CIBC Capital Appreciation Fund

CIBC Diversified Income Fund

CIBC Dividend Fund

CIBC Financial Companies Fund

CIBC Global Monthly Income Fund

CIBC Monthly Income Fund

Frontiers Pools

Frontiers Canadian Equity Pool

Frontiers Canadian Monthly Income Pool

Scotia Mutual Funds

Scotia Canadian Dividend Fund

Scotia Diversified Monthly Income Fund