CI Mutual Funds Inc. - MRRS Decision
Headnote
Exemptions from the mutual fund self-dealingprohibitions of clauses 111(2)(a), and 111(3) of the SecuritiesAct (Ontario). Mutual funds allowed to make purchases and salesof securities of Sun Life Financial Services of Canada Inc,a related company to the manager of the mutual funds, and toretain those securities provided that a fund governance mechanismis used to oversee the holdings, purchases or sales of thesesecurities for the mutual funds and to ensure that such holdings,purchases or sales have been made free from any influence bySun Life Financial Services of Canada Inc and without takinginto account any consideration relevant to the Sun Life FinancialServices of Canada Inc.
Statutes Cited
Securities Act (Ontario), R.S.O. 1990 c. S.5,as am., 111(2)(a), and 111(3).
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
ONTARIO, BRITISH COLUMBIA,ALBERTA, SASKATCHEWAN,
NOVA SCOTIA AND NEWFOUNDLANDAND LABRADOR
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
CI MUTUAL FUNDS INC.
AND
BPI AMERICAN EQUITY FUND
BPI AMERICAN EQUITY SECTORFUND
BPI GLOBAL EQUITY FUND
BPI GLOBAL EQUITY SECTOR FUND
BPI INTERNATIONAL EQUITY FUND
BPI INTERNATIONAL EQUITY SECTORFUND
CI AMERICAN GROWTH FUND
CI AMERICAN MANAGERS SECTORFUND
CI AMERICAN SMALL COMPANIESFUND
CI AMERICAN SMALL COMPANIESSECTOR FUND
CI AMERICAN VALUE FUND
CI AMERICAN VALUE SECTOR FUND
CI ASIAN DYNASTY FUND
CI CANADIAN EQUITY FUND
CI CANADIAN INVESTMENT FUND
CI CANADIAN SMALL CAP FUND
CI CANADIAN STOCK FUND
CI EMERGING MARKETS FUND
CI EMERGING MARKETS SECTORFUND
CI EUROPEAN FUND
CI EUROPEAN SECTOR FUND
CI EUROPEAN GROWTH FUND
CI GLOBAL BIOTECHNOLOGY SECTORFUND
CI GLOBAL CONSUMER PRODUCTSSECTOR FUND
CI GLOBAL ENERGY SECTOR FUND
CI GLOBAL FINANCIAL SERVICESSECTOR FUND
CI GLOBAL FUND
CI GLOBAL SECTOR FUND
CI GLOBAL HEALTH SCIENCESSECTOR FUND
CI GLOBAL MANAGERSTMSECTOR FUND
CI GLOBAL SMALL COMPANIESFUND
CI GLOBAL SMALL COMPANIESSECTOR FUND
CI GLOBAL TECHNOLOGY SECTORFUND
CI GLOBAL TELECOMMUNICATIONSSECTOR FUND
CI GLOBAL VALUE FUND
CI GLOBAL VALUE SECTOR FUND
CI INTERNATIONAL FUND
CI INTERNATIONAL SECTOR FUND
CI INTERNATIONAL VALUE FUND
CI INTERNATIONAL VALUE SECTORFUND
CI JAPANESE SECTOR FUND
CI PACIFIC FUND
CI PACIFIC SECTOR FUND
CI TACTONICS FUND
CI VALUE TRUST SECTOR FUND
CI WORLD EQUITY FUND
HARBOUR FUND
HARBOUR SECTOR FUND
HARBOUR FOREIGN EQUITY SECTORFUND
LANDMARK AMERICAN FUND
LANDMARK AMERICAN SECTOR FUND
LANDMARK CANADIAN FUND
LANDMARK CANADIAN SECTOR FUND
LANDMARK GLOBAL SECTOR FUND
SIGNATURE CANADIAN RESOURCEFUND
SIGNATURE CANADIAN RESOURCESECTOR FUND
SIGNATURE EXPLORER FUND
SIGNATURE EXPLORER SECTORFUND
SIGNATURE SELECT CANADIANFUND
SIGNATURE SELECT CANADIANSECTOR FUND
CI CANADIAN ASSET ALLOCATIONFUND
CI DIVERSIFIED FUND
CI GLOBAL BOOMERNOMICS®SECTOR FUND
CI INTERNATIONAL BALANCEDFUND
CI INTERNATIONAL BALANCEDSECTORFUND
HARBOUR GROWTH & INCOMEFUND
SIGNATURE CANADIAN BALANCEDFUND
SIGNATURE CANADIAN INCOMEFUND
CI CANADIAN BOND FUND
CI CANADIAN BOND SECTOR FUND
CI DIVIDEND FUND
CI GLOBAL BOND FUND
CI GLOBAL BOND SECTOR FUND
CI INTERNATIONAL BOND RSPFUND
CI SHORT-TERM BOND FUND
CI MID-TERM BOND FUND
CI LONG-TERM BOND FUND
SIGNATURE DIVIDEND FUND
SIGNATURE DIVIDEND SECTORFUND
SIGNATURE DIVIDEND INCOMEFUND
SIGNATURE HIGH INCOME FUND
SIGNATURE HIGH INCOME SECTORFUND
INSIGHT CANADIAN VALUE POOL
INSIGHT CANADIAN GROWTH POOL
INSIGHT CANADIAN DIVIDENDGROWTH POOL
INSIGHT CANADIAN SMALL CAPPOOL
INSIGHT U.S. VALUE POOL
INSIGHT U.S. GROWTH POOL
INSIGHT INTERNATIONAL VALUEPOOL
INSIGHT INTERNATIONAL GROWTHPOOL
INSIGHT GLOBAL EQUITY POOL
INSIGHT GLOBAL SMALL CAP POOL
INSIGHT CANADIAN HIGH YIELDINCOME POOL
INSIGHT CANADIAN FIXED INCOMEPOOL
INSIGHT GLOBAL FIXED INCOMEPOOL
CLARICA CONSERVATIVE BALANCEDFUND
CLARICA HIGH YIELD BOND FUND
CLARICA BALANCED FUND
CLARICA CANADIAN LARGE CAPVALUE FUND
CLARICA GLOBAL LARGE CAP VALUEFUND
CLARICA GLOBAL SCIENCE &TECHNOLOGY FUND
CLARICA SHORT TERM BOND FUND
CLARICA PREMIER MORTGAGE FUND
CLARICA INCOME FUND
CLARICA PREMIER BOND FUND
CLARICA SUMMIT GROWTH ANDINCOME FUND
CLARICA GLOBAL BOND FUND
CLARICA CANADIAN GROWTH EQUITYFUND
CLARICA GROWTH FUND
CLARICA CANADIAN BLUE CHIPFUND
CLARICA CANADIAN DIVERSIFIEDFUND
CLARICA SUMMIT CANADIAN EQUITYFUND
CLARICA SUMMIT DIVIDEND GROWTHFUND
CLARICA PREMIER AMERICAN FUND
CLARICA SUMMIT FOREIGN EQUITYFUND
CLARICA US GROWTH EQUITY FUND
CLARICA PREMIER INTERNATIONALFUND
CLARICA ALPINE GROWTH EQUITYFUND
CLARICA CANADIAN SMALL/MIDCAP FUND
CLARICA US SMALL CAP FUND
CLARICA EUROPEAN EQUITY FUND
CLARICA ALPINE ASIAN FUND
CLARICA ASIA AND PACIFIC RIMEQUITY FUND
CLARICA PREMIER EMERGING MARKETSFUND
CLARICA ALPINE CANADIAN RESOURCESFUND
CLARICA BOND FUND
CLARICA DIVERSIFUND 40
CLARICA EQUIFUND
CLARICA AMERIFUND
(the "Current Funds")
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker")in each of Ontario, British Columbia, Alberta, Saskatchewan,Nova Scotia and Newfoundland and Labrador (the "Jurisdictions")has received an application from CI Mutual Funds Inc. (the "Filer"),in respect of the Current Funds together with such other mutualfunds for which the Filer hereafter becomes the manager (individuallya "Fund" and collectively the "Funds"),for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the provisions containedin the Legislation prohibiting a mutual fund from knowinglymaking or holding an investment in any person or company whois a substantial security holder of the mutual fund, its managementcompany or distribution company shall not apply to investmentsmade by the Funds in the securities of Sun Life Financial Servicesof Canada Inc. ("SLFS");
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;
AND WHEREAS the Filer has representedto the Decision Makers that:
1. The Filer is a corporation amalgamatedunder the laws of Ontario and is or will be the manager ofeach Fund. The Filer's registered office is located in Ontario.
2. Each Fund is or will be either an open-endmutual fund trust established under the laws of Ontario ora class of shares of a mutual fund corporation incorporatedunder the laws of Ontario.
3. At the time a Fund invests in securitiesof SLFS, that Fund is or will be a reporting issuer underthe securities legislation in all the Jurisdictions.
4. The Filer is a wholly-owned subsidiaryof CI Fund Management Inc. ("CIX"). CIX isa corporation incorporated under the laws of Ontario. CIXis a reporting issuer under the securities legislation inall the provinces of Canada and the common shares of CIX arelisted and posted for trading on The Toronto Stock Exchange.
5. Sun Life Assurance Company of Canada ("SunLife") and Clarica Life Insurance Company ("Clarica")are wholly-owned subsidiaries of SLFS.
6. On July 25, 2002, CIX completed a transactionwith Sun Life, Clarica and others pursuant to which CIX acquired,among other assets, all of the issued and outstanding sharesof Clarica Diversico Ltd. (a wholly-owned subsidiary of Clarica)and Spectrum Investment Management Limited (a wholly-ownedsubsidiary of Sun Life) (the "Transaction").In return, CIX issued, in aggregate, approximately 71 millioncommon shares to Clarica and Sun Life. Pursuant to the Legislation,all such shares are deemed to be owned by SLFS with the resultthat, as of the date hereof, SLFS (through Sun Life and Clarica)indirectly owns approximately 31.6% of the issued and outstandingcommon shares of CIX.
7. SLFS is a "substantial security holder"of the Filer because it is deemed to own more than 20% ofthe voting securities of the Filer. The Legislation prohibitseach Fund from knowingly making or holding an investment inSLFS because it is a substantial security holder of the Filer.
8. The Filer believes that it would be inthe best interests of investors of the Funds to be permittedto invest in securities of SLFS, in keeping with the investmentobjectives of the Funds, up to the limit allowed by applicableLegislation.
9. The Filer will establish an independentreview committee (the "IRC"), comprised entirelyof individuals who are wholly independent of the Filer andSLFS, to oversee the holdings, purchases or sales of securitiesof SLFS for the Funds.
10. The IRC shall review the holdings, purchasesor sales of securities of SLFS to ensure that they have beenmade free from any influence by SLFS and without taking intoaccount any consideration relevant to SLFS.
11. The IRC will take into consideration thebest interests of securityholders of the Funds and no otherfactors.
12. It is currently anticipated that the membersof the IRC will be comprised exclusively of members of theBoard of Governors of the CI Mutual Funds that: (a) fulfillthe conditions for independence stipulated in paragraph 2(b)below, and (b) are not directors, officers, employees or associatesof the Filer, SLFS, any portfolio manager of the Funds, orany associate or affiliate of the Filer, SLFS or any suchportfolio manager (other than acting as directors of a mutualfund corporation).
13. The independent members of the Board ofGovernors currently are paid a fixed annual fee which is allocatedto all mutual funds under the Filer's management, generallypro rata based upon their relative net asset values. Thereis no intention to pay the members of the IRC any compensationin addition to their usual compensation as members of theBoard of Governors.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers underthe Legislation is that:
1. the provisions contained in the Legislationprohibiting a mutual fund from knowingly making or holdingan investment in any person or company who is a substantialsecurity holder of the mutual fund, its management companyor distribution company shall not apply to investments madeby the Funds in securities of SLFS; and
2. this Decision, as it relates to the jurisdictionof a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that DecisionMaker dealing with mutual fund governance in a manner thatconflicts with or makes inapplicable any provision of thisDecision;
PROVIDED THAT:
(a) The Filer has appointed the IRC to reviewthe Funds' purchases, sales and continued holdings of securitiesof SLFS;
(b) the IRC has at least three members,none of whom is an associate or employee of (i) the Fileror SLFS, (ii) any portfolio manager of the Funds; or (iii)any associate or affiliate of the Filer or SLFS or the portfoliomanagers of the Funds;
(c) the IRC has a written mandate describingits duties and standard of care which, as a minimum, setsout the conditions of this Decision;
(d) the members of the IRC exercise theirpowers and discharge their duties honestly, in good faithand in the best interests of investors in the Funds and,in doing so, exercise the degree of care, diligence andskill that a reasonably prudent person would exercise inthe circumstances;
(e) none of the Funds relieves the membersof the IRC from liability for loss that arises out of afailure to satisfy the standard of care set out in paragraph(d) above;
(f) none of the Funds indemnifies the membersof the IRC against legal fees, judgments and amounts paidin settlement as a result of a breach of the standard ofcare set out in paragraph (d) above;
(g) none of the Funds incurs the cost ofany portion of liability insurance that insures a memberof the IRC for a liability for loss that arises out of afailure to satisfy the standard of care set out in paragraph(d) above;
(h) the cost of any indemnification or insurancecoverage paid for by the Filer, any portfolio manager ofthe Funds, or any associate or affiliate of the Filer orthe portfolio managers of the Funds to indemnify or insurethe members of the IRC in respect of a loss that arisesout of a failure to satisfy the standard of care set outin paragraph (d) above is not paid either directly or indirectlyby the Funds;
(i) the IRC reviews the Funds' purchases,sales and continued holdings of securities of SLFS on aregular basis, but not less frequently than every threemonths;
(j) the IRC forms the opinion at any time,after reasonable inquiry, that the decisions made on behalfof each Fund by the Filer or the Fund's portfolio managerto purchase, sell or continue to hold securities of SLFSwere and continue to be in the best interests of the Fund,and:
(i) represent the business judgement ofthe Filer or the Fund's portfolio manager, uninfluencedby considerations other than the best interests of theFund;
(ii) have been made free from any influenceby SLFS and without taking into account any considerationrelevant to SLFS; and
(iii) do not exceed the limitations ofthe applicable legislation;
(k) the determination made by the IRC pursuantto paragraph (j) above is included in detailed written minutesprovided to the Filer not less frequently than every threemonths;
(l) the reports required to be filed pursuantto the Legislation with respect to every purchase and saleof securities of SLFS are filed on SEDAR in respect of therelevant Fund;
(m) the IRC advises the Decision Makersin writing of:
(i) any determination by it that the conditionset out in paragraph (j) has not been satisfied with respectto any purchase, sale or holding of securities of SLFS;
(ii) any determination by it that anyother condition of this Decision has not been satisfied;
(iii) any action it has taken or proposesto take following the determinations referred to above;and
(iv) any action taken, or proposed tobe taken, by the Filer or a portfolio manager of the Fundsin response to the determinations referred to above; and
(n) the existence, purpose, duties and obligationsof the IRC, the names of its members, whether and how theyare compensated by the Funds, and the fact that they meetthe requirements of the condition set out in paragraph (b)are disclosed:
(i) in a press release issued, and a materialchange report filed, prior to reliance on the Decision;
(ii) in item 12 of Part A of the simplifiedprospectus of the Funds; and
(iii) on the Filer's internet website.
December 24, 2002.
"Robert W. Korthals" "TheresaMcLeod"