Mercer Global Investments Canada Limited et al. - s. 113
January 23, 2007
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
(the "Act")
AND
IN THE MATTER OF
Mercer Global Investments Canada Limited
(the "Filer")
AND
MGI Money Market Fund,
MGI Real Return Bond Fund,
MGI Long Bond Fund,
MGI Fixed Income Fund,
MGI Canadian Equity Fund,
MGI U.S. Equity Fund, and
MGI International Equity Fund
(collectively, the "Funds")
ORDER
(Section 113 of the Act)
Background
The Ontario Securities Commission (the "Commission") has received an application from the Filer on behalf of the Funds and other mutual funds as may be established and managed by the Filer from time to time (together with the Funds, the "MGI Pooled Funds") for an Order under section 113 of the Act exempting the MGI Pooled Funds from the investment restrictions in paragraph 111(2)(b) and subsection 111(3) of the Act which prohibit a mutual fund from knowingly making or holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial securityholder (the "Requested Relief").
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this Order unless they are defined in this Order.
Representations
This Order is based on the following facts represented by the Filer on behalf of the MGI Pooled Funds:
1. The Filer is a corporation incorporated under the Business Corporations Act (Ontario) with its head office in Toronto, Ontario.
2. The Filer is registered with the Commission under the Act as an adviser in the categories of investment counsel and portfolio manager.
3. The MGI Pooled Funds were formed under the laws of the Province of Ontario on August 17, 2006 under the provisions of a master declaration of trust dated August 17, 2006, as it may be amended from time to time.
4. The Filer is responsible for the day-to-day administrative management of the MGI Pooled Funds and the management of the investment portfolios of the MGI Pooled Funds under the terms of the Master Management Agreement dated August 17, 2006, as it may be amended from time to time.
5. The Filer operates the MGI Pooled Funds under a "manager of managers" structure under which it has appointed various sub-advisers (each a "Sub-Adviser" and collectively the "Sub-Advisers") to assist in the management of the investment portfolios of the MGI Pooled Funds.
6. The Filer has delegated its portfolio management responsibilities in respect of the MGI Pooled Funds to the Sub-Advisers selected by the Filer under the terms of various investment sub-adviser agreements entered into between each Sub-Adviser and the Filer.
7. The Filer will allocate a portion of the assets of one or more MGI Pooled Funds to a Sub-Adviser to manage. The percentage allocated by the Filer to each Sub-Adviser may fluctuate from time to time based on investment decisions made by the Filer in order to meet the investment objectives of each Fund.
8. Pursuant to the authority delegated to them by the Filer, the Sub-Advisers may, from time to time, invest some or all of these assets in securities of other mutual funds that may or may not include reporting issuers in the Province of Ontario, including funds managed by the Sub-Advisers (each, an "Underlying Fund", collectively, "Underlying Funds"). An Underlying Fund will not be managed by the Filer.
9. While the Filer expects that many Sub-Advisers will manage these assets in a separately managed account, at times the Sub-Adviser may determine that the most efficient method by which to manage these assets is to invest some or all of them in securities of an Underlying Fund.
10. The amounts invested from time to time in an Underlying Fund by one or more of the MGI Pooled Funds may exceed 20% of the outstanding voting securities of that Underlying Fund.
11. The MGI Pooled Funds are being sold in Canada to institutional investors pursuant to exemptions from the prospectus requirements in accordance with National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"). The MGI Pooled Funds are not reporting issuers in the Province of Ontario and are not in default under the Act.
12. An offering memorandum in respect of the MGI Pooled Funds will be prepared and will be made available to investors in those funds.
13. In connection with the purchase by the MGI Pooled Funds of securities of an Underlying Fund (the "Fund-on-Fund Structure"), the Filer shall ensure that:
(a) no management or incentive fees are payable by a MGI Pooled Fund that, to a reasonable person, would duplicate a fee payable by the Underlying Fund for the same service;
(b) no sales or redemption fees are payable by a MGI Pooled Fund in relation to its purchases or redemptions of securities of the Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the MGI Pooled Fund;
(c) the offering memorandum of a MGI Pooled Fund will disclose:
(i) that the MGI Pooled Fund may purchase securities of Underlying Funds; and
(ii) the percentage of net assets of the MGI Pooled Fund that is dedicated to the investment in securities of Underlying Funds;
(d) upon request and if available, an investor in a MGI Pooled Fund will receive a copy of the offering memorandum of the Underlying Fund prior to subscribing for units of the MGI Pooled Fund, and the availability of that offering memorandum and the method by which it may be requested will be disclosed in the offering memorandum of the MGI Pooled Fund;
(e) upon request, an investor in a MGI Pooled Fund will be provided with the annual and interim financial statements of the Underlying Fund, and the method by which these financial statements may be requested will be disclosed in the offering memorandum of the MGI Pooled Fund; and
(f) any investment by a MGI Pooled Fund in securities of the Underlying Fund is compatible with the MGI Pooled Fund's investment objectives.
14. In the absence of the Requested Relief, the MGI Pooled Funds would be precluded from implementing the Fund-on-Fund Structure due to the investment restrictions contained in paragraph 111(2)(b) and subsection 111(3) of the Act.
15. The Fund-on-Fund Structure represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the MGI Pooled Funds.
Decision
The Commission is satisfied that the test contained in section 113 of the Act has been met.
The Commission orders that the Requested Relief is granted to the MGI Pooled Funds in connection with the Fund-on-Fund Structure provided that:
1. units of the MGI Pooled Funds are sold solely in Canada pursuant to exemptions from the prospectus requirements in accordance with NI 45-106;
2. no management or incentive fees are payable by a MGI Pooled Fund that, to a reasonable person, would duplicate a fee payable by the Underlying Fund for the same service;
3. no sales or redemption fees are payable by a MGI Pooled Fund in relation to its purchases or redemptions of securities of the Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the MGI Pooled Fund; and
4. the offering memorandum of a MGI Pooled Fund will disclose:
(a) that the MGI Pooled Fund may purchase securities of Underlying Funds; and
(b) the percentage of net assets of the MGI Pooled Fund that is dedicated to the investment in securities of Underlying Funds.
Ontario Securities Commission