Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Short-term relief granted to mutual funds from requirement to disclose in mutual fund prospectus the equity interests held by the mutual fund organization in a participating dealer - Relief granted to participating dealer from the requirement to obtain the prior written consent of its clients to pre-authorized mutual fund trades to be carried out further to acquisition of equity interest by mutual fund organization in participating dealer - Mutual fund organization acquiring indirect control of participating dealer further to take-over bid - Change of control triggering requirement to disclose in mutual fund prospectus the equity interest held by the mutual fund organization in the participating dealer, and the requirement on the participating dealer to obtain the prior written consent of a client to trades in funds offered by the mutual fund organization - National Instrument 81-105 Mutual Fund Sales Practices.

Applicable Legislative Provisions

National Instrument 81-105 Mutual Fund Sales Practices, ss. 8.2(1)(a), 8.2(4), 9.1.

April 4, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,

NOVA SCOTIA, PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR,

NORTHWEST TERRITORIES, YUKON AND NUNAVUT

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

THE MUTUAL FUNDS LISTED

IN APPENDIX "A" HERETO

(the Funds)

AND

CI INVESTMENTS INC.,

UNITED FINANCIAL CORPORATION

AND BLACKMONT CAPITAL INC.

(the Filers)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application on behalf of the Filers for a decision under section 9.1 of National Instrument 81-105 -- Mutual Fund Sales Practices (the Legislation) that:

(a) exempts each Fund until July 31, 2007 from the requirement in paragraph 8.2(1)(a) of the Legislation to disclose in its prospectus the equity interests of Canadian International LP (CI LP) and CI Financial Income Fund (CI Financial) in Blackmont Capital Inc. (Blackmont); and

(b) exempts Blackmont from the requirement in subsection 8.2(4) of the Legislation to obtain the prior written consent of each client of Blackmont (the Blackmont Clients) before completing the purchase of additional securities of a Fund for such Blackmont Client pursuant to a Pre-Authorized Trade (as defined below),

collectively, the Requested Relief.

Under the Mutual Reliance Review System (MRRS) for Exemptive Relief Applications:

(c) the Ontario Securities Commission is the principal regulator for this application; and

(d) 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. CI Investments Inc. and United Financial Corporation (the CI Managers) are the managers of the Funds. The head office of each of the CI Managers is located in the province of Ontario.

2. Securities of the Funds currently are offered for sale in all the provinces and territories of Canada pursuant to simplified prospectuses and annual information forms dated July 28, 2006 and November 22, 2006, as amended from time to time, (the Prospectuses). The Legislation applies to the distribution of securities by each Fund.

3. Each CI Manager is a wholly-owned subsidiary of CI LP. CI LP, in turn, is controlled by CI Financial. Therefore, each of CI LP and CI Financial is a "member of the organization" of each Fund for purposes of the Legislation.

4. On February 22, 2007, CI Financial, through CI LP, made an offer (the Offer) by way of take-over bid to acquire all of the outstanding shares of Rockwater Capital Corporation (Rockwater). If the Offer is accepted by a sufficient number of shareholders of Rockwater and the other conditions of the Offer are either satisfied or waived, CI LP, and indirectly CI Financial, will acquire control of Rockwater (the Change of Control). The Change of Control is expected to occur on April 2, 2007.

5. Blackmont is a registered dealer under the securities legislation of all the provinces and territories of Canada and is an indirect, wholly-owned subsidiary of Rockwater. Blackmont has in the past, and may in the future, sell securities of some or all of the Funds. Blackmont therefore is a "participating dealer" of the Funds for purposes of the Legislation.

6. Upon the Change of Control, CI LP and CI Financial will acquire indirect control of Blackmont. This will result in CI LP and CI Financial each holding an "equity interest" in Blackmont for purposes of the Legislation.

7. After the Change of Control, Blackmont may sell additional securities of the Funds to Blackmont Clients. In some cases, the purchases will be made based on new instructions received from Blackmont Clients (New Trades). In other cases, the purchases will be made based on standing instructions received from Blackmont Clients prior to the Change of Control (Pre-Authorized Trades). Pre-Authorized Trades will arise in the following circumstances:

(a) Pre-authorized purchase programs: The Funds offer investors the opportunity to enrol in programs pursuant to which investors provide their instructions to purchase a specified dollar amount of securities of one or more Funds on a regular basis selected by the investor. Cash to pay for the purchase are debited electronically from the investor's account at a financial institution until the investor changes his or her instructions.

(b) Systematic transfer program: The Funds offer investors the opportunity to enrol in programs pursuant to which investors provide their instructions to transfer a predetermined dollar amount of investment from one Fund to another Fund with a frequency selected by the investor. These transfers are effected by redeeming securities from one Fund and immediately investing the redemption proceeds in securities of the next Fund until the investor changes his or her instructions.

(c) Account rebalancing programs: The Funds offer investors the opportunity to enrol in programs pursuant to which investors provide their target allocations among Funds in their account, together with the frequency with which they would like the current values of their holdings to be compared to their target allocations, and their range of permitted deviation from the target allocations. If, on the scheduled date selected by the investor, the current value of any individual holding deviates from its target allocation by more than the permitted deviation, redemption and purchase trades are effected to rebalance the investor's holdings to their target allocations. These rebalancing trades continue until the investor changes his or her instructions.

(d) Distribution/dividend reinvestment programs: Unless investors instruct the CI Manager otherwise, all distributions and dividends paid by the Funds are immediately reinvested in additional securities of the Fund that paid the distribution or dividend.

8. There currently are Blackmont Clients enrolled in each type of Pre-Authorized Trade program described above with respect to one or more Funds.

9. Following the Change of Control, Pre-Authorized Trades by Blackmont Clients will continue unless the Applicants disregard the standing instructions from Blackmont Clients for such Pre-Authorized Trades.

10. Each Pre-Authorized Trade constitutes a distribution of additional securities of a Fund to which the Legislation applies.

11. New Trades made by Blackmont for Blackmont Clients will comply with the requirements of section 8.2(3) and 8.2(4) of the Legislation.

12. Pre-Authorized Trades by Blackmont for Blackmont Clients will be made after Blackmont Clients have received the disclosure contemplated by section 8.2(3) of the Legislation. Such disclosure will include a statement reminding Blackmont Clients that they are permitted to provide instructions to terminate their participation in a Pre-Authorized Trade program.

13. It is not feasible for Blackmont to obtain the prior written consent of each Blackmont Client contemplated by section 8.2(4) of the Legislation prior to completing the next Pre-Authorized Trade for each Blackmont Client since many Blackmont Clients are likely to disregard the request to sign and return the consent form in a timely manner. Consequently, if the Requested Relief is not granted, Blackmont will be required to seek cancellation of all Pre-Authorized Trade instructions from Blackmont Clients until it is able to comply with subsection 8.2(4).

14. Blackmont Clients have enrolled in Pre-Authorized Trade programs prior to CI LP and CI Financial acquiring an equity interest in Blackmont. Accordingly, there was no actual or perceived conflict of interest at the time that Blackmont advised Blackmont Clients with respect to their investments in the Funds, including their enrolment in Pre-Authorized Trade programs. As the interests of Blackmont Clients were adequately protected from conflicts of interest at the time they decided to enrol in Pre-Authorized Trade programs, there is no conflict of interest with permitting such Pre-Authorized Trades to continue following the Change of Control.

15. Following the Change of Control, registered personnel of Blackmont who sell securities of the Funds will remain subject to the requirements in Canadian securities legislation to recommend to Blackmont Clients only investments which are suitable for them.

16. The information prescribed by paragraph 8.2(1)(a) of the Legislation will be included in the next annual renewal of the Prospectuses, which the CI Managers currently intend to complete by July 31, 2007.

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.

"Wendell S. Wigle"
Commissioner
Ontario Securities Commission
 
"David L. Knight"
Commissioner
Ontario Securities Commission

 

Appendix "A"

CI American Equity Fund
CI American Equity Corporate Class
CI Alpine Growth Equity Fund
CI American Managers® Corporate Class
CI American Small Companies Fund
CI American Small Companies Corporate Class
CI American Value Fund
CI American Value Corporate Class
CI Can-Am Small Cap Corporate Class
CI Canadian Investment Fund
CI Canadian Investment Corporate Class
CI Canadian Small/Mid Cap Fund
CI Emerging Markets Fund
CI Emerging Markets Corporate Class
CI European Fund
CI European Corporate Class
CI Global Fund
CI Global Corporate Class
CI Global Biotechnology Corporate Class
CI Global Consumer Products Corporate Class
CI Global Energy Corporate Class
CI Global Financial Services Corporate Class
CI Global Health Sciences Corporate Class
CI Global High Dividend Advantage Fund
CI Global Managers® Corporate Class
CI Global Small Companies Fund
CI Global Small Companies Corporate Class
CI Global Science & Technology Corporate Class
CI Global Value Fund
CI Global Value Corporate Class
CI International Fund
CI International Corporate Class
CI International Value Fund
CI International Value Corporate Class
CI Japanese Corporate Class
CI Pacific Fund
CI Pacific Corporate Class
CI Value Trust Corporate Class
Harbour Fund
Harbour Corporate Class
Harbour Foreign Equity Corporate Class
Signature Canadian Resource Fund
Signature Canadian Resource Corporate Class
Signature Select Canadian Fund
Signature Select Canadian Corporate Class
Synergy American Fund
Synergy American Corporate Class
Synergy Canadian Corporate Class
Synergy Canadian Style Management Corporate Class
Synergy Focus Canadian Equity Fund
Synergy Focus Global Equity Fund
Synergy Global Corporate Class
Synergy Global Style Management Corporate Class
 
CI Canadian Asset Allocation Fund
CI Global Balanced Corporate Class
CI International Balanced Fund
CI International Balanced Corporate Class
Harbour Foreign Growth & Income Corporate Class
Harbour Growth & Income Fund
Harbour Growth & Income Corporate Class
Signature Canadian Balanced Fund
Signature Income & Growth Fund
Signature Income & Growth Corporate Class
Synergy Tactical Asset Allocation Fund
CI Canadian Bond Fund
CI Canadian Bond Corporate Class
CI Short-Term Bond Fund
CI Long-Term Bond Fund
CI Money Market Fund
CI US Money Market Fund
CI Short-Term Corporate Class
CI Short-Term US$ Corporate Class
CI Global Bond Fund
CI Global Bond Corporate Class
CI Mortgage Fund
Signature Corporate Bond Fund
Signature Corporate Bond Corporate Class
Signature Dividend Fund
Signature Dividend Corporate Class
Signature High Income Fund
Signature High Income Corporate Class
 
Portfolio Series Income Fund
Portfolio Series Conservative Fund
Portfolio Series Balanced Fund
Portfolio Series Conservative Balanced Fund
Portfolio Series Balanced Growth Fund
Portfolio Series Growth Fund
Portfolio Series Maximum Growth Fund
 
Select Income Managed Corporate Class
Select Canadian Equity Managed Corporate Class
Select U.S. Equity Managed Corporate Class
Select International Equity Managed Corporate Class
Select Staging Fund
 
Select 100i Managed Portfolio Corporate Class
Select 80i20e Managed Portfolio Corporate Class
Select 70i30e Managed Portfolio Corporate Class
Select 60i40e Managed Portfolio Corporate Class
Select 50i50e Managed Portfolio Corporate Class
Select 40i60e Managed Portfolio Corporate Class
Select 30i70e Managed Portfolio Corporate Class
Select 20i80e Managed Portfolio Corporate Class
Select 100e Managed Portfolio Corporate Class
 
Cash Management Pool
Short Term Income Pool
Canadian Fixed Income Pool
Global Fixed Income Pool
Enhanced Income Pool
 
Canadian Equity Value Pool
Canadian Equity Diversified Pool
Canadian Equity Growth Pool
Canadian Equity Small Cap Pool
 
US Equity Value Pool
US Equity Diversified Pool
US Equity Growth Pool
US Equity Small Cap Pool
 
International Equity Value Pool
International Equity Diversified Pool
International Equity Growth Pool
Emerging Markets Equity Pool
 
Real Estate Investment Pool
 
Artisan Canadian T-Bill Portfolio
Artisan Most Conservative Portfolio
Artisan Conservative Portfolio
Artisan Moderate Portfolio
Artisan Growth Portfolio
Artisan High Growth Portfolio
Artisan Maximum Growth Portfolio
Artisan New Economy Portfolio
 
Institutional Managed Canadian Equity Pool
Institutional Managed US Equity Pool
Institutional Managed International Equity Pool
Institutional Managed Income Pool
 
CI Global High Dividend Advantage Corporate Class
Signature Global Income & Growth Fund
Signature Global Income & Growth Corporate Class