Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from subsection 4.1(1) of National Instrument 81-102 Mutual Funds to allow dealer managed mutual funds to invest in securities of an issuer during the prohibition period -- affiliates of the Dealer Managers acted as underwriters in connection with the distribution of securities of the issuer.

Applicable Legislative Provisions

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

July 3, 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,

THE NORTHWEST TERRITORIES, NUNAVUT

AND THE YUKON

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTAL RELIANCE REVIEW SYSTEM (MRRS)

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

NATCAN INVESTMENT MANAGEMENT INC. AND

BMO HARRIS INVESTMENT MANAGEMENT INC.

(together, the "Dealer Managers")

AND

ALTAMIRA INVESTMENT SERVICES INC. AND

BMO HARRIS INVESTMENT MANAGEMENT INC.

(together, the "Managers")

 

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

    • an exemption from subsection 4.1(1) of NI 81-102 to enable the Dealer Managed Funds to invest in units (the "Units") of Urbana Corporation (the "Issuer"), each Unit consisting of one Non-Voting Class A Share (each a "Class A Share") of the Issuer and one-half of one Class A Share purchase warrant (each whole purchase warrant, a "Warrant", and collectively with the Units and the Class A Shares, the "Securities") during the distribution period of the Units (the "Distribution") and to invest in Class A Shares and Warrants during the 60-day period (the "60-day Period") following completion of the Distribution (the Distribution and the 60-day Period together, the "Prohibition Period"), notwithstanding that an associate or an affiliate of the Applicant acts or has acted as an underwriter in connection with the offering (the "Offering") of Units of the Issuer pursuant to a simplified prospectus filed in all of the provinces of Canada and on a private placement basis in the United Kingdom(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.

It is the responsibility of each of the Decision Makers to make a global assessment of the risks involved in granting exemptive relief from subsection 4.1(1) of NI 81-102 in relation to the specific facts of each application.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions have the same meanings in this decision unless they are defined in this decision.

Representation

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

1. The Dealer Managers are "dealer managers" with respect to the Dealer Managed Funds, and the Dealer Managed Funds are "dealer managed mutual funds", as such terms are defined in section 1.1 of NI 81-102.

2. The Dealer Managers are the portfolio advisers to the Dealer Managed Funds. Altamira Investment Services Inc. is the manager of the Altamira Funds listed in Appendix "A" and an affiliate of Natcan Investment Management Inc. ("Natcan"). BMO Harris Investment Management Inc. ("BHIM") is both the manager and portfolio adviser of the BMO Harris Growth Opportunities Portfolio.

3. The head office of BHIM is in Toronto, Ontario and the head office of Natcan is in Montreal, Quebec.

4. 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 the applicable securities legislation.

5. The Offering is being underwritten, subject to certain terms, by a syndicate which will include National Bank Financial Inc., an affiliate of Natcan and Altamira Investment Services Inc., and BMO Nesbitt Burns Inc., an affiliate of BHIM (together, the "Related Underwriters") (the Related Underwriters and any other underwriter, which are now or may become part of the syndicate prior to closing, the "Underwriters").

6. As described in the Issuer's preliminary simplified prospectus dated June 6, 2007 (the "Preliminary Prospectus"), the Issuer is an investment company governed by the Business Corporations Act (Ontario). The Issuer is a "non-redeemable investment fund" and an "investment fund" although it is not a "mutual fund" for the purposes of applicable securities laws of the provinces and territories of Canada. The strategy of the Issuer is to search for and acquire investments for income and capital appreciation.

7. According to the Preliminary Prospectus, the offering price of the Units will be determined by negotiation between the Issuer and the Underwriters and the gross proceeds of the Offering are expected to be approximately $50,000,000 to $100,000,000. In addition, the Underwriters will be granted an option to purchase up to an additional 15% of the Offering exercisable until 30 days after the Closing Date (as defined below).

8. According to the Simplified Prospectus, each Warrant will entitle the holder to subscribe for one additional Class A Share and will expire approximately two years from the closing of the Offering, which is expected to occur on or about July 11, 2007 (the "Closing Date").

9. Except with respect to voting, each common share of the Issuer and each Class A Share will have the same rights and are equal in all respects on a share for share basis. The holders of Class A Shares are entitled to receive notice of and attend all meetings of common shareholders of the Issuer. The holders of Class A Shares will not be entitled to vote at such meetings other than as required by applicable law.

10. According to the Preliminary Prospectus, the net proceeds of the Offering will be used by the Issuer to acquire additional participants in various exchange properties as the opportunity arises and for general corporate purposes.

11. As described in the Simplified Prospectus, the Class A Shares are listed on the Toronto Stock Exchange ("TSX") under the symbol "URB.A". The Issuer also has a series of Non-Voting Class A purchase warrants listed on the TSX under the symbol "URB.WT". The Issuer has applied to list the Class A Shares and Warrants issued as part of the Offering on the TSX.

12. As described in the Simplified Prospectus, the Issuer will not issue or sell any Class A Shares or financial instruments convertible or exchangeable into common shares or Class A Shares, other than for purposes of employee stock options, to satisfy warrants, agreements, instruments or other arrangements issued or existing as of the date of the Simplified Prospectus, or in exchange for common shares of NYSE Group Inc. held by other investment vehicles managed by Caldwell Investment Management Ltd. for a period of 180 days from the Closing Date, without the prior consent of Blackmont Capital Inc. (an Underwriter), such consent not to be unreasonably withheld.

13. The Simplified Prospectus does not disclose that the Issuer is a "related issuer" or "connected issuer", as defined in National Instrument 33-105 -- Underwriting Conflicts, of the Related Underwriters.

14. Despite the affiliation between the Dealer Managers and the Related Underwriters, they operate independently of each other. In particular, the investment banking and related dealer activities of the Related Underwriters and the investment portfolio management activities of the 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, the Dealer Managers and the Related Underwriters may communicate to enable the Dealer Managers to maintain an up to date restricted-issuer list to ensure that the Dealer Managers comply with applicable securities laws); and

(b) the Dealer Managers and the Related Underwriters may share general market information such as discussion on general economic conditions, bank rates, etc.

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

16. The Dealer Managers may cause the Dealer Managed Funds to invest in Securities during the Prohibition Period. Any purchase of Securities will be consistent with the investment objectives of the Dealer Managed Funds and represent the business judgment of the Dealer Managers 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.

17. To the extent that the same portfolio manager or team of portfolio managers of the Dealer Managers manage the Dealer Managed Funds and other client accounts that are managed on a discretionary basis (the "Managed Accounts"), the purchases 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 Managers for the Dealer Managed Funds and Managed Accounts, and

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

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

19. 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 Fund, 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 Managers.

20. 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 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.

21. Each Dealer Manager, in respect of the 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 (as defined below) on SEDAR, as soon as practicable after the filing of such report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.

22. Except as described above, each Dealer Manager has not been involved in the work of its Related Underwriter and the Related Underwriter has not been and will not be involved in the decisions of the Dealer Manager as to whether the Dealer Managed Funds will purchase Securities during the Prohibition Period.

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 Underwriter acts or has acted as underwriter in the Offering provided that the following conditions are satisfied:

I. At the time of each purchase (the "Purchase") of Securities 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 Securities 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 Securities for the Dealer Managed Funds;

IV. The Related Underwriter does not purchase Units in the Offering for its own accounts except Units that are sold by the Related Underwriter on Closing;

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

VI. The Independent Committee has a written mandate describing its duties and standard of care which, as 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 Fund 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. 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 Managers, the Dealer Manager, any portfolio manager of the Dealer Managed Fund, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Fund 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 Fund;

XI. The Dealer Manager files a certified report on SEDAR (the "SEDAR Report"), in respect of the Dealer Managed Fund, no later than 30 days after the end of the Prohibition Period, that contains a certification by the Dealer Manager that contains:

(a) the following particulars of each Purchase:

(i) the number of Securities 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 Securities;

(iv) if Securities 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 Securities 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 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 Securities by the Dealer Managed Fund, 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 the Dealer Managed Fund by the Dealer Manager to purchase Securities for the Dealer Managed Fund 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 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 Securities by the 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 Managers or the Dealer Manager of the Dealer Managed Fund, in response to the determinations referred to above.

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

(a) expresses an interest to purchase on behalf of the Dealer Managed Fund 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 Managers 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 Managers, in the event that the Over-Allotment Option is exercised at the time of the closing of the Offering; and

(d) does not sell Units purchased by the Dealer Managers under the Offering, prior to the listing of the Class A Shares and the Warrants on the TSX;

XIV. Each Purchase of Warrants and Class A Shares during the 60-Day Period is made on the TSX; and

XV. For Purchases of Warrants and Class A Shares 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 OSC Rule 48-501, Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.

"Leslie Byberg"
Manager, Investment Funds Branch
Ontario Securities Commission

 

Appendix "A"

THE MUTUAL FUNDS

The Altamira Funds

Altamira Balanced Fund

Altamira Capital Growth Fund Limited

Altamira Equity Fund

Altamira Growth & Income Fund

BMO Harris Private Portfolios

BMO Harris Growth Opportunities Portfolio