CIBC Asset Management Inc., CIBC Global Asset Management Inc. and RBC Asset Management Inc. - MRRS Decision
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 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.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.
March 1, 2006
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
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
CIBC ASSET MANAGEMENT INC.,
CIBC GLOBAL ASSET MANAGEMENT INC.
AND RBC ASSET MANAGEMENT INC.
(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 (or "Dealer Managers"), for and on behalf of the mutual funds named in Appendix "A" (the "Funds" or "Dealer Managed Funds") for whom the Applicants act as manager or portfolio advisor 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 the trust fund units (the "Units") of Yellow Pages Income Fund (the "Issuer") on the Toronto Stock Exchange (the "TSX") during the 60-day period following the completion of the distribution (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 of the Issuer pursuant to a short form base shelf prospectus dated March 11, 2005 (the "Prospectus") to be supplemented by a shelf prospectus supplement (the "Prospectus Supplement") to be filed in accordance with the securities legislation of all Canadian provinces (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 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.
Representations
This decision is based on the following facts represented by the Applicants:
1. Each Dealer Manager is a "dealer manager" with respect to the Dealer Managed Funds, and each Dealer Managed Fund is a "dealer managed fund", as such terms are defined in section 1.1 of NI 81-102.
2. The head offices of CIBC Asset Management Inc. and RBC Asset Management are in Toronto, Ontario. The head office of CIBC Global Asset Management Inc. is in Montreal, Québec.
3. 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 and annual information forms that have been prepared and filed in accordance with their respective securities legislation.
4. The Prospectus was filed with, and a receipt was issued under the MRRS by the Decision Makers in each of the Provinces of Canada on March 11, 2005.
5. According to the Prospectus and a term sheet of the Issuer (the "Term Sheet"), the Offering is expected to be for approximately 15,000,000 Units of the Issuer with the gross proceeds of the Offering expected to be approximately $253,500,000. According to the Term Sheet, the Closing Date is expected to occur on or about February 27, 2006.
6. The Offering is being underwritten subject to certain terms, by a syndicate which will include CIBC World Markets Inc. and RBC Dominion Securities Inc. (the "Related Underwriters"), among others (the Related Underwriters together with the other underwriters, which are now or may become part of the syndicate prior to closing, the "Underwriters"). Each of the Related Underwriters is an affiliate of a Dealer Manager.
7. As described in the Prospectus, the Issuer, through its subsidiaries, is Canada's largest telephone directories publisher and the exclusive owner of the Yellow PagesTM, Pages JaunesTM and Walking Fingers and DesignTM trademarks in Canada. According to the Prospectus, the Issuer, through its subsidiaries, publishes 244 different telephone directories annually, including the 35 telephone directories published by Aliant ActiMedia (for which the Issuer, through one of its subsidiaries, acts as managing partner). Including the directories published by Aliant ActiMedia, the Issuer's directories have a total circulation of approximately 18 million copies, reaching substantially all of the households and businesses in their markets and approximately 70% of the population in Canada. As disclosed in the Prospectus, the Issuer also operates through its subsidiaries, the leading online telephone directories in Canada, YellowPages.caTM (and its French equivalent, PagesJaunes.caTM), Canada411.ca, Canadatollfree.ca and the CanadaPlus.ca group of city sites, which allows the Company to offer bundled packages of print and online directory advertising products.
8. According to the Term Sheet, the Issuer issues monthly distributions to unitholders on the last day of each following month which are paid no later than the 30th day of each following month. The Units will be entitled to participate in the upcoming monthly distribution to be paid on March 15, 2006.
9. Based upon the information provided in the Term Sheet, the net proceeds of the Offering will be used to repay indebtedness and for general corporate purposes.
10. The Issuer and the Underwriters will enter into an underwriting agreement (the "Underwriting Agreement") prior to the Issuer filing the Prospectus Supplement. Pursuant to the terms of the Underwriting Agreement, the Issuer will agree to issue and sell to the Underwriters, and each of the Underwriters will severally (and not jointly) agree to purchase, all but not less than all of the subscription receipts offered under the Offering from the Issuer, as principal, on Closing.
11. The Issuer's outstanding Units are listed on the Toronto Stock Exchange (the "TSX") under the symbol "YLO.UN". According to the Term Sheet, the Issuer shall undertake to apply for listing of the Units on the TSX.
12. According to the Prospectus, the Issuer may be considered a "connected issuer", as defined in NI 33-105, of CIBC World Markets Inc. and RBC Dominion Securities Inc. for the reasons set forth in the Prospectus. As disclosed in the Prospectus, certain of the Related Underwriters are subsidiaries or affiliates of lenders (the "Lenders") who have made credit facilities available to the Issuer or its subsidiaries. According to the Prospectus, as of February 28, 2005, there were no amounts owing under these existing facilities. As outlined above, the proceeds of the Offering will be used to repay indebtedness and for general corporate purposes. According to the Prospectus the decision to distribute the Units was made by the Issuer and the terms and conditions of the Offering were determined free of any involvement on the part of the Lenders. None of the Related Underwriters connected to the Issuer will receive any benefit from the Offering other than its portion of the remuneration payable by the Issuer on the principal amount of the Units sold through or to it.
13. The Dealer Managed Funds are not required or obligated to purchase any Units during the Prohibition Period. 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 up to date restricted-issuer lists to ensure that the Dealer Managers comply with applicable securities laws); and
(b) each Dealer Manager and the Related Underwriters may share general market information such as discussion on general economic conditions, bank rates, etc.
14. The Dealer Managers may cause the Dealer Managed Funds to invest in the Units during the Prohibition Period. Any purchase of the Units will be consistent with the investment objectives of the Dealer Managed Fund making the purchase and represent the business judgment of the Dealer Managers uninfluenced by considerations other than the best interests of the Dealer Managed Fund or in fact be in the best interests of the Dealer Managed Fund.
15. 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.
16. There will be an independent committee (the "Independent Committee") appointed in respect of the Dealer Managed Funds to review the Dealer Managed Funds' investments in the Units during the Prohibition Period.
17. 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.
18. 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.
19. 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, in writing of any SEDAR Report (as defined below) filed 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.
20. Each Dealer Manager has not been involved in the work of the Related Underwriters and the Related Underwriter has not been and will not be involved in the decisions of the Dealer Managers as to whether the Dealer Manager's Dealer Managed Funds will purchase Units 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 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 (the "Purchase") of Units 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. Each Dealer Managed Fund has an Independent Committee to review the Dealer Managed Fund's investments in the Units during the Prohibition Period;
IV. The Independent Committee has a written mandate describing its duties and standard of care which, as a minimum, sets out the conditions of this Decision;
V. 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;
VI. 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 V above;
VII. 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 V above;
VIII. The cost of any indemnification or insurance coverage paid for by the Dealer Manager, any portfolio manager of the Dealer Managed Fund, or any associate or affiliate of each 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 V above is not paid either directly or indirectly by the Dealer Managed Fund;
IX. The 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 Prohibition Period, that contains 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 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.
X. The Independent Committee advises the Decision Makers in writing of:
(a) any determination by it that the condition set out in paragraph IX(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.
XI. Each Purchase of Units during the Prohibition Period is made on the TSX; and
XII. 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 Equity Pool
Imperial Canadian Dividend Income Pool
Imperial Canadian Dividend Pool
Imperial Canadian Income Trust Pool
CIBC Mutual Funds
CIBC Balanced Fund
CIBC Core Canadian Equity Fund
CIBC Capital Appreciation Fund
CIBC Dividend Fund
CIBC Financial Companies Fund
Canadian Imperial Equity Fund
CIBC Canadian Small Companies Fund
CIBC Monthly Income Fund
CIBC Diversified Income Fund
Frontiers Pools
Frontiers Canadian Equity Pool
Frontiers Canadian Monthly Income Pool
Renaissance Talvest Mutual Funds
Renaissance Canadian Balanced Fund
Renaissance Canadian Balanced Value Fund
Renaissance Canadian Dividend Income Fund
Renaissance Canadian Core Value Fund
Renaissance Canadian Growth Fund
Renaissance Canadian Income Trust Fund
Renaissance Canadian Income Trust Fund II
Renaissance Canadian Small Cap Fund
Talvest Dividend Fund
Talvest Cdn. Equity Growth Fund
Talvest Cdn. Asset Allocation Fund
Talvest Global Asset Allocation Fund
Talvest Cdn. Equity Value Fund
Talvest Small Cap Cdn. Equity Fund
Talvest Millennium High Income Fund
Talvest Millennium Next Generation Fund
RBC Funds (formerly RBC Advisor Funds)
RBC Blue Chip Canadian Equity Fund
RBC Funds (formerly Royal Mutual Funds)
RBC Balanced Fund
RBC Canadian Equity Fund
RBC Canadian Growth Fund
RBC Canadian Value Fund
RBC Balanced Growth Fund
RBC Monthly Income Fund
RBC Private Pools
RBC Private Income Pool
RBC Private Dividend Pool
RBC Private Canadian Equity Pool
RBC Private Canadian Mid Cap Equity Pool
RBC Private Core Canadian Equity Pool
RBC Private Canadian Growth & Income Equity Pool
RBC Funds (New Advisor Series)
RBC Dividend Fund
RBC Tax Managed Return Fund