Phillips, Hager & North Investment Management Ltd. et al.
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted to permit applicant funds to purchase securities of related entity on secondary market and to continue principal trading portofolio debt securities with related dealers - Relief also granted to permit funds to purchase securities under private placements of reporting issuer underwritten by related dealers - Relief subject to conditions including IRC approval and pricing requirements.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 4.1(1), 4.1(2), 4.2, 19.1.
National Instrument 81-107 Independent Review Committee for Investment Funds.
April 28, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION (the Legislation) OF
BRITISH COLUMBIA AND ONTARIO
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
PHILLIPS, HAGER & NORTH INVESTMENT
MANAGEMENT LTD.
(the Filer)
AND
IN THE MATTER OF
THE MUTUAL FUNDS LISTED IN SCHEDULES A AND B
(each, an Existing Fund and, collectively, the Existing Funds)
AND ANY MUTUAL FUNDS SUBJECT TO NATIONAL
INSTRUMENT 81-102 -- MUTUAL FUNDS (NI 81-102)
THAT MAY BE MANAGED AND/OR ADVISED BY THE
FILER OR ANY AFFILIATE OR ASSOCIATE OF THE
FILER IN THE FUTURE
(each, a Future Fund and, collectively, the Future Funds)
DECISION
Background
The local securities regulatory authority or regulator (Decision Maker) in each of the Jurisdictions received an application (the Application) from the Filer on behalf of each Existing Fund, and any Future Funds (each, a Fund and, collectively, the Funds) under section 19.1 of NI 81-102 for relief in each Jurisdiction (the Requested Relief) from
(a) the prohibition in section 4.1(1) of NI 81-102 (the Section 4.1(1) Prohibition) in order to permit a Fund to purchase equity securities (Securities) of a reporting issuer during the period of distribution (the Distribution) of the issuer's Securities pursuant to a private placement (the Private Placement) and for 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 (a Related Person) of the dealer manager (the Dealer Manager) of the Fund acts or has acted as an underwriter in connection with the Distribution (each, a Relevant Offering);
(b) from the prohibition in section 4.1(2) of NI 81-102 (the Section 4.1(2) Prohibition) in order to permit a Fund to invest in a class of securities of an issuer (a Related Issuer) of which a partner, director, officer or employee of the dealer manager of the Fund or a partner, director, officer or employee of an affiliate or associate of the dealer manager of the Fund, is a partner, director or officer, notwithstanding that the partner, director, officer or employee:
(i) may participate in the formulation of investment decisions made on behalf of the dealer manager of the Fund;
(ii) may have access before implementation to information concerning investment decisions made on behalf of the dealer manager of the Fund; and
(iii) may influence, other than through research, statistical and other reports generally available to clients, the investment decisions made on behalf of the dealer manager of the Fund,
where such purchase occurs in the secondary market; and
(c) from the prohibition in section 4.2(1) of NI 81-102 (the Section 4.2(1) Prohibition) in order to permit a Fund to purchase from or sell to a Related Person of the manager, portfolio adviser or trustee of the Fund that is a principal dealer (Principal Dealer) in the Canadian debt securities market debt securities of an issuer other than the federal or a provincial government (Non-Government Debt Securities) or debt securities issued or fully and unconditionally guaranteed by the federal or a provincial government (Government Debt Securities) in the secondary market.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(i) the principal regulator for the Application is the British Columbia Securities Commission (BCSC);
(ii) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut, and
(iii) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Defined terms contained in National Instrument 14-101 -- Definitions, in MI 11-102, in the Legislation, in NI 81-102 and in National Instrument 81-107 -- Independent Review Committee for Investment Funds have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a company organized under the laws of British Columbia.
2. The Filer is registered under the Legislation of British Columbia as an adviser in the categories of investment counsel and portfolio manager (and in equivalent categories under the Legislation in the other Jurisdiction). In addition, the Filer is registered under the Legislation of Ontario as a dealer in the category of mutual fund dealer.
3. Each of the Funds is, or will be, an open-end mutual fund trust or mutual fund corporation.
4. The Filer, or an affiliate or associate of the Filer, is, or will be, the manager of each of the Existing Funds listed on Schedule A and any Future Funds managed by the Filer or one of its affiliates or associates (the Managed Mutual Funds). The Filer or an affiliate or associate of the Filer is expected to be a portfolio adviser of the Managed Mutual Funds.
5. The Filer, or an affiliate or associate of the Filer, is, or will be, a portfolio adviser, but not the manager, of each of the Existing Funds listed on Schedule B, and any Future Funds which may be advised (but not managed) by the Filer or one of its affiliates or associates (the Advised Funds).
6. The securities of each of the Funds are, or will be, offered for sale pursuant to a prospectus filed in the Jurisdictions. Each of the Funds is, or will be, a reporting issuer in one or more of the Jurisdictions.
7. As a result of a share purchase transaction (the Transaction) with the shareholders of the Filer and Royal Bank of Canada (RBC), each of the Funds may be, effective on and after the closing date (the Closing Date) of the Transaction, a dealer managed mutual fund (a Dealer Managed Fund) because the Filer, or a Related Person of the Filer, may be a Dealer Manager. A Related Person of the Filer may be, effective on and after the Closing Date, an underwriter in a Distribution which is a Relevant Offering or a Principal Dealer in the Canadian debt securities market and RBC, which is a significant issuer of both exchange traded and non-exchange traded securities, may be a Related Issuer in which a Fund is prohibited from investing, such that the Requested Relief is necessary.
8. The Filer, or an affiliate or associate of the Filer, has established, or will establish, an independent review committee (IRC) in respect of a Managed Mutual Fund in accordance with the requirements of NI 81-107.
9. The Advised Funds are, or will be, subject to the oversight of an IRC in respect of the Advised Funds in accordance with the requirements of NI 81-107.
10. A Fund would not be subject to the Section 4.1(1) Prohibition in connection with a Relevant Offering if, in accordance with section 4.1(4) of NI 81-102, certain conditions are met, including that a prospectus is filed in one or more of the Jurisdictions and the IRC of the Fund has approved the investment in accordance with NI 81-107.
11. The investment strategies of a Fund that relies on the Requested Relief from the Section 4.1(2) Prohibition permit or will permit it to invest in the securities purchased, either as a principal strategy in achieving its investment objective or as a temporary strategy, pending the purchase of other securities.
12. The role played by a Principal Dealer which, as the result of the Transaction, will be a Related Person of the manager, portfolio advisor or trustee of a Fund is such that the Fund needs the Requested Relief from the Section 4.2 Prohibition because:
(a) there is a limited supply of Non-Government Debt Securities and Government Debt Securities available; and
(b) frequently the only source of Non-Government Debt Securities and Government Debt Securities will be a Related Person.
13. The RBC Funds and RBC Private Pools which are managed by RBC Asset Management Inc. (RBC AM) have received the Requested Relief on substantially the same terms as requested by the Filer. RBC AM will be an affiliate of the Filer following the Transaction.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted effective on the Closing Date in respect of each Fund provided that:
A. Requested Relief from the Section 4.1(1) Prohibition
The Investment Decision
1. At the time of each purchase by a Dealer Managed Fund during a Prohibition Period for a Relevant Offering, the Dealer Managed Fund has an IRC that complies with NI 81-107 and the IRC of the Dealer Managed Fund will have approved the investment in accordance with each of subsection 4.1(4)(a) of NI 81102 and NI 81-107. The Dealer Managed Fund will also comply with paragraphs (c)(ii) and (d) of subsection 4.1(4) of NI 81-102.
2. Each issuer of a Relevant Offering is a reporting issuer or equivalent under the Legislation in a jurisdiction of Canada at the time of each purchase by a Dealer Managed Fund during the Prohibition Period for the Relevant Offering.
Transparency
3.
(a) Prior to the first reliance on the decision, the internet website of the Dealer Managed Fund or Dealer Manager, as applicable, discloses, and
(b) on the date which is the earlier of (i) the date when an amendment to the simplified prospectus of the Dealer Managed Fund is filed for reasons other than this decision and (ii) the date on which the initial or renewal simplified prospectus is receipted, Part A of the simplified prospectus of the Dealer Managed Fund discloses, that the Dealer Managed Fund may invest in Securities during the Prohibition Period pursuant to this decision, notwithstanding that a Related Person has acted as underwriter in the Relevant Offering of the same class of such Securities.
4. On the date which is the earlier of:
(i) the date when an amendment to the annual information form of the Dealer Managed Fund is filed for reasons other than the decision; and
(ii) the date on which the initial or renewal annual information form is receipted,
the annual information form of the Dealer Managed Fund discloses the information referred to in paragraph 3 above and describes the policies or procedures and standing approvals, if any, that have been approved by the IRC as related to investments that can only be made pursuant to the decision.
Sunset
5. This decision, as it relates to the jurisdiction of a Decision Maker, will terminate on the coming into force of any legislation or rule of the Decision Makers dealing with Private Placements in the context of section 4.1 of NI 81-102.
B. Requested Relief from the Section 4.1(2) Prohibition:
At the time of each investment:
1. The purchase or sale is consistent with, or is necessary to meet, the investment objective of the Fund.
2. The IRC has approved the transaction in accordance with Section 5.2(2) of NI 81-107.
3 The manager of the Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions.
4. If the security is an exchanged traded security, the purchase is made on an exchange on which the securities of the issuer are listed and traded.
5. If the security is not an exchange traded security,
(a) the price payable for the security is not more than then ask price of the security;
(b) the ask price of the security is determined as follows:
(i) if the purchase occurs on a marketplace, the price payable is determined in accordance with the requirements of that marketplace; or
(ii) if the purchase does not occur on a marketplace,
(A) the Fund may pay the price for the security at which an independent, arm's length seller is willing to sell the security, or
(B) if the Fund does not purchase the security from an independent, arm's length seller, the Fund must obtain, immediately before the purchase, at least one quote from an independent, arm's length purchaser or seller and not pay more then that quote.
6. The transaction complies with any applicable "market integrity requirements" as defined in section 6.1(1)(b) of NI 81-107.
7. No later than the time the Fund files its annual financial statements, the Filer, or an affiliate or associate of the Filer, or in the case of an Advised Mutual Fund, the manager of the Advised Mutual Fund, files with the securities regulatory authority or regulator the particulars of any investments made in reliance on this relief.
C. Requested Relief from the Section 4.2(1) Prohibition
1. The purchase or sale is consistent with, or is necessary to meet, the investment objective of the Fund.
2. The IRC of the Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107.
3. The manager of the Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions.
4. The bid and ask price of the security is readily available as provided in Commentary 7 to section 6.1 of NI 81-107.
5. A purchase is not executed at a price which is higher than the available ask price of the security and a sale is not executed at a price which is lower than the available bid price.
6. The purchase or sale is subject to market integrity requirements as defined in NI 81-107.
7. The Fund keeps the written records required by section 6.1(2)(g) of NI 81-107.
SCHEDULE A
Managed Mutual Funds
1 Phillips, Hager & North U.S. Equity Fund2 Phillips, Hager & North Canadian Equity Plus Pension Trust3 Phillips, Hager & North Bond Fund4 Phillips, Hager & North Canadian Equity Fund5 Phillips, Hager & North Dividend Income Fund6 Phillips, Hager & North Vintage Fund7 Phillips, Hager & North Canadian Money Market Fund8 Phillips, Hager & North Canadian Growth Fund9 Phillips, Hager & North Balanced Pension Trust10 Phillips, Hager & North $U.S. Money Market Fund11 Phillips, Hager & North Balanced Fund12 Phillips, Hager & North U.S. Growth Fund13 Phillips, Hager & North Short Term Bond & Mortgage Fund14 Phillips, Hager & North Small Float Fund15 Phillips, Hager & North Canadian Equity Pension Trust16 Phillips, Hager & North High Yield Bond Fund17 Phillips, Hager & North Total Return Bond Fund18 Phillips, Hager & North Global Equity Fund19 Phillips, Hager & North Overseas Equity Fund20 Phillips, Hager & North Overseas Equity Pension Trust21 Phillips, Hager & North U.S. Dividend Income Fund22 Phillips, Hager & North Community Values Bond Fund23 Phillips, Hager & North Community Values Balanced Fund24 Phillips, Hager & North Community Values Canadian Equity Fund25 Phillips, Hager & North Community Values Global Equity26 Phillips, Hager & North Canadian Income Fund27 Phillips, Hager & North Currency-Hedged U.S. Equity Fund28 Phillips, Hager & North Currency-Hedged Overseas Equity Fund29 BonaVista Global Balanced Fund30 BonaVista Canadian Equity Value Fund
SCHEDULE B
Advised Mutual Funds
1 Tradex Equity Fund Limited2 Pinnacle Canadian Value Equity Fund