National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Plan Sponsor, CAP Members, and certain existing and future pooled funds exempted from the dealer registration and prospectus requirements in the Legislation in respect of trades in securities of mutual funds to a tax-assisted capital accumulation plan, subject to certain terms and conditions -- Plan Sponsor acts as the service provider to the CAP.
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1)(a), 53(1), 74(1).
National Instrument 81-102 -- Mutual Funds.
National Instrument 45-106 -- Prospectus and Registration Exemptions.
Published Documents Cited
Amendments to NI 45-106 -- Registration and Prospectus Exemption for Certain Capital Accumulation Plans, October 21, 2005 (2005), 25 OSCB 8681.
February 12, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
LEGG MASON CANADA INC.
THE FUNDS LISTED IN APPENDIX A
The principal regulator in the Jurisdiction (the Principal Regulator) has received an application from the Filer, as the plan sponsor and administrator of the Legg Mason Canada group registered retirement savings plan (the Plan), the officers and employees acting on behalf of the Filer and the Legg Mason Canada funds identified in Appendix A hereto, and any other funds managed by the Filer that are selected for the Plan sponsored by the Filer (collectively, the Funds) for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption from:
(a) the dealer registration requirements of the Legislation in respect of trades in the securities of the Funds under the Plan for which the Filer is the sponsor and administrator, to a member of such a Plan (a Plan Member) as part of the Plan Member's participation in the Plan (the Dealer Registration Relief); and
(b) the prospectus requirements of the Legislation in respect of the distribution of securities of the Funds to a Plan Member as part of the Plan Member's participation in the Plan, without a prospectus (the Prospectus Relief);
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in respect of the Dealer Registration Relief and Prospectus Relief in Quebec (the Other Province).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation established under the laws of Canada and has its head office in Toronto, Ontario.
2. The Filer is registered as a portfolio manager under the securities legislation of all provinces and territories of Canada and in Ontario and Newfoundland and Labrador, as an exempt market dealer and also in Ontario as an adviser in the category of commodity trading manager under the Commodity Futures Act (Ontario).
3. The Filer is the plan sponsor of the Plan, pays for all administrative services in respect of the Plan and provides the order processing services of the Plan.
4. The Plan is a group registered retirement savings plan. As such, the Plan is a "capital accumulation plan" (CAP or CAP Plan) as that term is defined under the proposed amendments to National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) (collectively, the Proposed CAP Exemption) which were published by the Canadian Securities Administrators on October 21, 2005 and adopted in the form of a blanket exemption (the Blanket Orders) in each province and territory of Canada other than Ontario, Quebec, Newfoundland and Labrador, the Yukon and Nunavut.
5. The Filer established the Plan for the benefit of individual Plan Members. Plan Members are current and former officers and employees and/or their spouses by spousal contribution. The active Plan Members are resident solely in Ontario and Quebec.
6. The Plan only allows Funds managed by the Filer to be investment options for Plan Members under the Plan.
7. The Filer matches the contribution of Plan Members up to a prescribed limit.
8. The Funds are mutual fund trusts but are not reporting issuers. The Funds are sold only on a private placement basis by way of an Offering Memorandum ("OM") to members of the Plan. Each of the Funds complies with Part 2 of National Instrument 81-102 Mutual Funds. The Filer acts as trustee of the Funds.
9. The Filer is not in default of securities legislation in any province or territory of Canada. The Funds are not in default of securities legislation in any province or territory of Canada.
10. The Filer has ceased to offer funds subject to National Instrument 81-102 Mutual Funds and only offers investment funds that are not reporting issuers.
11. The Filer is the investment fund manager and portfolio manager of the Fund and delegates its portfolio management duties to affiliates of the Filer. Certain of the affiliates are either currently registered in Ontario as a portfolio manager (international adviser) and in the future may rely on either an "exempt international adviser" status or the sub-adviser exemption in section 7.3 of OSC Rule 35-502 Non-Resident Advisers in providing their services to the Funds.
12. The Filer, as plan sponsor of the Plan, currently trades in securities of the Funds to Plan Members in reliance on certain prospectus and dealer registration exemptions in securities legislation set out in National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). Plan Members are provided with an offering memorandum and may make initial investment decisions and subsequent changes to those investment decisions, with or without the assistance of an adviser selected by the Plan Member (which is not the Filer). Plan Members provide these instructions to the Filer and the Filer then places the orders directly with the Funds. The interest in the securities of the Funds of the Plan Members is registered in the name of the Plan Member. The Filer also deals with all other administrative aspects of the Plan, including any necessary communications with the Plan Members.
13. The dealer registration exemption relied on by the Filer in Part 3 of NI 45-106 will expire on March 27, 2010 under section 8.5 of NI 45-106. As such, the Filer requires the Dealer Registration Relief to continue trading securities of the Funds to a Plan Member after March 27, 2010. The Filer and the Funds seek the Prospectus Relief to enable the Plan to operate in accordance with the conditions of the Proposed CAP Exemption and wish to no longer rely on the prospectus exemption in Part 2 of NI 45-106 going forward.
14. The Filer may have active Plan Members in provinces other than Ontario and Quebec in the future. Accordingly, the Filer and the Funds wish to trade securities of the Funds to Plan Members uniformly in accordance with the conditions specified in the Proposed CAP Exemption which has been adopted by Blanket Order in certain other jurisdictions of Canada. Such proposal contemplates both a dealer registration exemption and a prospectus exemption based on certain conditions.
The Principal Regulator is satisfied that the Decision meets the test set out in the Legislation for the Principal Regulator to make the Decision.
The decision of the Principal Regulator under the Legislation is that:
1. the Dealer Registration Relief is granted provided that the Filer, as plan sponsor of the Plan:
(a) selects the Funds that Plan Members will be able to invest in under the Plan;
(b) establishes a policy, and provides Plan Members with a copy of the policy and any amendments to it, describing what happens if a Plan Member does not make an investment decision;
(c) provides Plan Members, in addition to any other information that the Filer believes is reasonably necessary for a Plan Member to make an investment decision within the Plan, and unless that information has previously been provided, with the following information about each Fund the Plan Member may invest in:
(i) the name of the Fund;
(ii) the name of the manager of the Fund and its portfolio adviser;
(iii) the fundamental investment objective of the Fund;
(iv) the investment strategies of the Fund or the types of investments the Fund may hold;
(v) a description of the risks associated with investing in the Fund;
(vi) where a Plan Member can obtain more information about each Fund's portfolio holdings; and
(vii) where a Plan Member can obtain more information generally about each Fund, including any continuous disclosure;
(d) provides Plan Members with a description and amount of any fees, expenses and penalties relating to the Plan that are borne by Plan Members, including:
(i) any costs that must be paid when the Fund is bought or sold;
(ii) costs associated with accessing or using any of the investment information, decision-making tools or investment advice provided by the Filer;
(iii) Fund management fees;
(iv) Fund operating expenses;
(v) record keeping fees;
(vi) any costs for transferring among investment options, including penalties, book and market value adjustments and tax consequences;
(vii) account fees; and
(viii) fees for services provided by service providers,
provided that the Filer may disclose the fees, penalties and expenses on an aggregate basis, if the Filer discloses the nature of the fees, expenses and penalties, and the aggregated fees do not include fees that arise because of a choice that is specific to a particular Plan Member;
(e) at least annually, provides the Plan Members with performance information about each Fund the Plan Members may invest in, including:
(i) the name of the Fund for which the performance is being reported;
(ii) the performance of the Fund, including historical performance for one, three, five and 10 years if available;
(iii) a performance calculation that is net of investment management fees and Fund expenses;
(iv) the method used to calculate the Fund's performance return calculation, and information about where a Plan Member can obtain a more detailed explanation of that method;
(v) the name and description of a broad-based securities market index, selected in accordance with National Instrument 81-106 -- Investment Fund Continuous Disclosure, for the Fund, and corresponding performance information for that index; and
(vi) a statement that past performance of the Fund is not necessarily an indication of future performance;
(f) at least annually, informs Plan Members if there were any changes in the choice of Funds that Plan Members could invest in and where there was a change, provides information about what Plan Members need to do to change their investment decision, or make a new investment;
(g) provides Plan Members with investment decision-making tools that the Filer reasonably believes are sufficient to assist them in making an investment decision within the Plan;
(h) provides the information required by paragraphs (b), (c), (d) and (g) prior to the Plan Member making an investment decision under the Plan ; and
(i) if the Filer makes investment advice from a registrant available to Plan Members, the Filer must provide Plan Members with information about how they can contact the registrant; and
2. the Prospectus Relief is granted provided that:
(a) the conditions set forth in paragraph 1 above are met; and
(b) the Funds comply with Part 2 of National Instrument 81-102 -- Mutual Funds; and
(a) the Dealer Registration Relief will terminate upon the coming into force in NI 45-106, or proposed National Instrument 31-103 -- Registration Requirements or another instrument, of a dealer registration exemption for trades in a security of a mutual fund to a Plan, or 60 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to provide such a dealer registration exemption; and
(b) the Prospectus Relief will terminate upon the coming into force in NI 45-106 of a prospectus exemption for trades in a security of a mutual fund to a Plan, or 60 days after the Decision Maker publishes in its Bulletin a notice or a statement to the effect that it does not propose to provide such a prospectus exemption.
NAME OF FUNDS