Phillips, Hager & North Investment Management Ltd. et al. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Relief granted from prohibition in the Regulation against an investment counsel purchasing and selling any security in which an investment counsel or any partner, officer or associate of the investment counsel has a direct or indirect beneficial interest from or to a portfolio managed or supervised by the investment counsel -- The relief will enable a portfolio manager, also an investment counsel, on behalf of certain mutual funds, to continue to purchase and sell debt securities with a dealer that will become a related dealer upon completion of an acquisition -- The relief is conditional on approval by the funds' independent review committee established under National Instrument 81-107 Independent Review Committee for Investment Funds and compliance with certain pricing requirements.
Applicable Legislative Provisions
Ontario Regulation 1015 General Regulation, s. 115(6).
Securities Act (Ontario), s. 147.
April 25, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION (the Legislation)
OF ALBERTA, SASKATCHEWAN, ONTARIO,
NEW BRUNSWICK, NOVA SCOTIA, AND
NEWFOUNDLAND AND LABRADOR
(Jurisdictions)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
(MRRS)
AND
IN THE MATTER OF
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 AND ANY FUTURE MUTUAL FUND
TO WHICH NATIONAL INSTRUMENT 81-102
-- MUTUAL FUNDS (NI 81-102) APPLIES
(each, an NI 81-102 Fund and, collectively,
the NI 81-102 Funds) AND THE POOLED FUNDS
LISTED IN SCHEDULES A AND B AND ANY
FUTURE MUTUAL FUND TO WHICH
NI 81-102 DOES NOT APPLY (each, a Private
Fund and, collectively, the Private Funds)
OF WHICH THE FILER OR AN AFFILIATE
OR ASSOCIATE OF THE FILER IS THE
MANAGER OR A PORTFOLIO ADVISER
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions have received an application from the Filer for a decision under the securities regulations and rules of the Jurisdictions (the Regulations) for relief from the restriction contained in the Regulations that prohibits the purchase or sale of a security in which an investment counsel, or any associate of an investment counsel, (together, a Related Counsel) has a direct or indirect beneficial interest from or to any portfolio managed or supervised by the Related Counsel, in order to permit the NI 81-102 Funds and the Private Funds to purchase from or sell to a related party that is a principal dealer in the Canadian debt securities market (a Related Dealer) 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 (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 -- Definitions, in the Legislation, in NI 81-102 and in National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) have the same meaning in this MRRS Decision Document unless they are otherwise defined in this Decision Document.
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 securities legislation in the other Jurisdictions). In addition, the Filer is registered under the Legislation of Ontario as a dealer in the category of mutual fund dealer and is registered as an Investment Adviser with the U.S. Securities and Exchange Commission.
3. The Filer, or an affiliate or associate of the Filer, is or will be the manager of the NI 81-102 Funds listed in Schedule A and any future NI 81-102 Funds managed by the Filer or one of its affiliates or associates (the Managed Mutual Funds) and the Private Funds listed in Schedule A or any future Private Funds managed by the Filer or one of its affiliates or associates (the Managed Pooled Funds). The Filer, or an affiliate or associate of the Filer, is expected to be a portfolio adviser of the Managed Mutual Funds and Managed Pooled Funds.
4. The Filer, or an affiliate or associate of the Filer, is or will be a portfolio advisor, but not the manager, of the NI 81-102 Funds listed in Schedule B and any future NI 81-102 Funds advised (but not managed) by the Filer, or one of its affiliates or associates, (the Advised Mutual Funds) and the Private Funds listed in Schedule B or any future Private Funds advised (but not managed) by the Filer or one of its affiliates or associates (the Advised Pooled Funds).
5. Each of the existing NI 81-102 Funds and Private Funds is a mutual fund established under the laws of British Columbia or one of the Jurisdictions.
6. Each of the future NI 81-102 Funds or future Private Funds will be a mutual fund established under the laws of British Columbia or of another Jurisdiction.
7. The securities of the NI 81-102 Funds are or will be offered for sale pursuant to a prospectus filed in the Jurisdictions. The NI 81-102 Funds are or will be reporting issuers in one or more of the Jurisdictions.
8. The securities of the Private Funds are or will be offered for sale in the Jurisdictions pursuant to an exemption from the prospectus requirement.
9. Pursuant to the terms of a share purchase transaction (the Transaction) with the shareholders of the Filer, Royal Bank of Canada (RBC) will become, indirectly, a substantial securityholder of the Filer on the closing of the Transaction.
10. As a result of the Transaction, the Requested Relief will be required because effective on and after the closing date (the Closing Date) of the Transaction, the Filer, or an affiliate or associate of the Filer, may wish to purchase for a NI 81-102 Fund or Private Fund or sell from a NI 81-102 Fund or Private Fund, as the case may be, Non-Government Debt Securities or Government Debt Securities from or to, as the case may be, a Related Dealer.
11. Each of the NI 81-102 Funds has, or will have, at the time the Requested Relief is relied upon, an independent review committee (IRC) appointed under NI 81-107.
12. The Filer, or an affiliate or associate of the Filer, will establish an IRC (which will likely also be the IRC in respect of the NI 81-102 Funds) in respect of each Managed Pooled Fund that relies on the Requested Relief. The IRC of the Managed Pooled Fund will be composed by the Filer, or an affiliate or associate of the Filer, in accordance with the requirements of section 3.7 of NI 81-107 and will be expected to comply with the standard of care set out in section 3.9 of NI 81-107, as if NI 81-107 applied to the Managed Pooled Fund.
13. The manager of an Advised Pooled Fund will establish an IRC in respect of each Advised Pooled Fund that relies on the Requested Relief. The IRC of the Advised Pooled Fund will be composed in accordance with the requirements of section 3.7 of NI 81-107 and will be expected to comply with the standard of care set out in section 3.9 of NI 81-107, as if NI 81-107 applied to the Advised Pooled Fund.
14. The mandate of the IRC of a NI 81-102 Fund or a Private Fund will include reviewing and approving purchases and sales of Non-Government Debt Securities or Government Debt Securities with a Related Dealer.
15. The investment strategies of a NI 81-102 Fund or Private Fund that relies on the Requested Relief 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.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Makers is that the Requested Relief is granted provided that:
(a) the purchase or sale is consistent with, or is necessary to meet, the investment objective of the NI 81-102 Fund or Private Fund;
(b) the IRC of the NI 81-102 Fund or Private Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;
(c) the manager of the NI 81-102 Fund or Private Fund complies with section 5.1 of NI 81-107 and the manager and the IRC of the NI 81-102 Fund or Private Fund comply with section 5.4 of NI 81-107 for any standing instructions the IRC provides in connection with the transactions;
(d) the bid and ask price of the Non-Government Debt Security or Government Debt Security is readily available, as provided in Commentary 7 to section 6.1 of NI 81-107;
(e) a purchase is not executed at a price which is higher than the available ask price and a sale is not executed at a price which is lower than the available bid price;
(f) the purchase or sale is subject to market integrity requirements as defined in NI 81-107; and
(g) the NI 81-102 Fund or Private Fund keeps the written records required by section 6.1(2)(g) of NI 81-107.
"Lawrence E. Ritchie"
"Paul K. Bates"
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
Managed Pooled Funds
1. Phillips, Hager & North U.S. Pooled Pension Fund2. Phillips, Hager & North Institutional S.T.I.F.3. Phillips, Hager & North Long Bond Pension Trust4. Phillips, Hager & North High Grade Corporate Bond Fund5. Phillips, Hager & North Investment Grade Corporate Bond Trust6. Phillips, Hager & North Mortgage Pension Trust7. Phillips, Hager & North Absolute Return Fund8. Phillips, Hager & North Income Equity Pension Trust9. Phillips, Hager & North Enhanced Income Equity Pension Trust10. Phillips, Hager & North Global Equity Pension Trust11. Phillips, Hager & North PRisM -- Short12. Phillips, Hager & North PRisM -- Mid13. Phillips, Hager & North PRisM -- Long14. Phillips, Hager & North Long Mortgage Pension Trust15. Phillips, Hager & North Long Corporate Bond Pension Trust16. Phillips, Hager & North Foreign Bond Fund17. Phillips, Hager & North PRisM Balanced Fund18. Phillips, Hager & North Enhanced Total Return Bond Fund19. BonaVista Canadian Equity Fund20. BonaVista U.S. Equity Fund21. BonaVista Fixed Income Fund22. BonaVista Money Market Fund23. BonaVista Balanced Fund24. BonaVista International Equity Fund25. BonaVista Private Balanced Fund
SCHEDULE B
Advised Mutual Funds
1. Social Housing Canadian Money Market Fund2. Social Housing Canadian Short-Term Bond Fund3. Social Housing Canadian Bond Fund4. Social Housing Canadian Equity Fund5. Tradex Equity Fund Limited6. Pinnacle Canadian Value Equity Fund
Advised Pooled Funds