Securities Law & Instruments

Headnote

Direct and indirect (through forward contracts) investment by RSP clone funds in securitiesof more than one other mutual funds some of which are not under common managementfor specified purpose exempted from the requirements of clause 111(2)(b) and subsection111(3), clauses 117(1)(a) and 117(1)(d), subject to certain specified conditions underwhich an "active" investment structure up to foreign property limit may be used.

Relief from the requirements of clause 111(2)(b) and subsection 111(3), clauses 117(1)(a)and 117(1)(d) in respect of passive fund-of-fund structure in respect of one mutual fundinvesting in four unrelated underlying funds.

Statutes Cited

Securities Act (Ontario), R.S.O. 1990, c.S. 5, as am. ss. 111(2)(b), 111(3), 117(1)(a) & (d).


IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,ONTARIO, NOVA SCOTIA, AND NEWFOUNDLAND

AND

IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
COUNSEL GROUP OF FUNDS INC., COUNSEL FOCUS RSP PORTFOLIO, COUNSEL WORLD EQUITY RSP PORTFOLIO,COUNSEL SELECT SECTOR PORTFOLIO, COUNSEL SELECT SECTOR RSP PORTFOLIO

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario,Nova Scotia and Newfoundland (the "Jurisdictions") has received an application (the"Application") from Counsel Group of Funds Inc., ("Counsel") in its own capacity and onbehalf of Counsel Focus RSP Portfolio, Counsel World Equity RSP Portfolio and CounselSelect Sector RSP Portfolio (collectively, the "RSP Funds") and on behalf of CounselSelect Sector Portfolio for a decision (the "Decision") pursuant to the securities legislationof the Jurisdictions (the "Legislation") that, the requirements or prohibitions under theLegislation (the "Applicable Requirements") described in paragraphs (a) and (b) belowshall not apply to investments by the RSP Funds directly in securities of the ReferenceFund(s) (as defined below) (collectively, the "Direct Investments"), and to investments byCounsel Select Sector Portfolio directly in securities of AIM Global Technology Fund, AIMGlobal Health Sciences Fund, C.I. Global Telecommunications Sector Shares and C.I.Global Financial Services Sector Shares (the "Select Sector Investments"):

1. the provisions requiring the management company of a mutual fund to file a reportrelating to a purchase or sale of securities between the mutual fund and any relatedperson or company, or any transaction in which, by arrangement other than anarrangement relating to insider trading in portfolio securities, the mutual fund is ajoint participant with one or more of its related persons or companies;

(a) the provisions prohibiting a mutual fund from knowingly making and holdingan investment in a person or company in which the mutual fund, alone ortogether with one or more related mutual funds, is a substantial securityholder.

AND WHEREAS under the Mutual Reliance Review System for Exemptive ReliefApplications (the "System"), the Ontario Securities Commission is the principal regulatorfor this application.

AND WHEREAS throughout this Decision Document the term "Reference Fund(s)"shall mean:

  • Counsel Focus Portfolio when used in connection with Counsel Focus RSPPortfolio

     

  • Mawer World Investment Fund and Counsel Focus Portfolio when used inconnection with Counsel World Equity RSP Portfolio; and

     

  • C.I. Global Telecommunications Sector Shares, C.I. Global FinancialServices Sector Shares, AIM Global Technology Fund and AIM GlobalHealth Sciences Fund when used in connection with Counsel Select SectorRSP Portfolio.

     

AND WHEREAS it has been represented by Counsel to the Decision Makers that:

The RSP Funds and the Direct Investments

1. The RSP Funds and Counsel Select Sector Portfolio will be open-ended mutualfund trusts, and Counsel Focus Portfolio (the "Related Reference Fund") is anopen-ended mutual fund trust, established under the laws of the Province ofOntario. Counsel is, or will be, the manager and promoter of the RSP Funds andthe Related Reference Fund. Counsel is a corporation established under the lawsof the Province of Ontario.

2. The Trust Company of the Bank of Montréal is, or will be, the trustee of the RSPFunds and the Related Reference Fund.

3. The RSP Funds and Counsel Select Sector Portfolio will be reporting issuers, andthe Related Reference Fund is a reporting issuer, in every jurisdiction in Canada(except Québec), and they are not in default of any requirements of the act or rulesapplicable in every such jurisdiction.

4. The units of the Related Reference Fund are currently qualified for distributionpursuant to a simplified prospectus and annual information form dated February 15,2000, and the units of the RSP Funds and Counsel Select Sector Portfolio will bequalified under a (final) simplified prospectus and annual information form that willbe filed shortly in all of the provinces (except Québec) and territories of Canada(the "Prospectus Jurisdictions") under SEDAR project number 276346.

5. AIM Global Technology Fund and AIM Global Health Sciences Fund (the "AIMReference Funds") are mutual fund trusts created under the laws of Ontario bydeclarations of trust dated November 27, 1996 and October 16, 1992, respectively.AIM Funds Management Inc. ("AIM") is the manager and trustee of the AIMReference Funds.

6. The AIM Reference Funds are reporting issuers in every jurisdiction in Canada andthey are not in default of any requirements of the act or rules applicable in any suchjurisdiction. The securities of the AIM Reference Funds are currently qualified fordistribution pursuant to a simplified prospectus and annual information form datedAugust 25, 1999.

7. C.I. Global Telecommunications Sector Shares and C.I. Global Financial ServicesSector Shares (the "C.I. Reference Funds") are classes of special shares of C.I.Sector Fund Limited, a mutual fund corporation incorporated on July 8, 1987pursuant to the laws of Ontario. The C.I. Reference Funds were issued on July 23,1996 and are managed by C.I. Mutual Funds Inc. ("C.I.").

8. The C.I. Reference Funds are reporting issuers in every jurisdiction in Canada andthey are not in default of any requirements of the act or rules applicable in any suchjurisdiction. The securities of the C.I. Reference Funds are currently qualified fordistribution pursuant to a simplified prospectus and annual information form datedAugust 5, 1999.

9 The prospectuses of the RSP Funds contain and will contain disclosure withrespect to the investment objective, investment strategies, investment practices andrestrictions of the RSP Funds.

10. To achieve their investment objectives, the RSP Funds will invest their assets insecurities such that their units will be "qualified investments" for registeredretirement savings plans, registered retirement income funds and deferred profitsharing plans ("Registered Plans") and will not constitute foreign property in aRegistered Plan.

11. The Counsel Focus RSP Portfolio will, through direct investments and throughinvestment in forward contracts or other specified derivatives with one or morefinancial institutions or dealers (the "Counterparties"), acquire exposure to units ofits Reference Fund.

12. Each of the Counsel World Equity RSP Portfolio and Counsel Select Sector RSPPortfolio will, through direct investments and through investment in forwardcontracts or other specified derivatives with one or more Counterparties, acquireexposure to units of its Reference Funds according to the target percentages (the"Target Percentages") set forth in the Prospectus.

13. The aggregate amount of each RSP Fund's direct investments in securities of itsReference Fund(s) will not at any time exceed the maximum limit permitted underthe Income Tax Act (Canada) (the "Tax Act") from time to time (the "PermittedLimit"). Counsel and the RSP Funds will comply with the conditions of this Decisionin respect of such investments. The investment by the RSP Funds in the ReferenceFunds will be adjusted from time to time so that, except for transitional cash, theaggregate of derivative exposure to, and direct investments in, the ReferenceFunds will equal 100 percent of the assets of the RSP Funds.

14. The investment objectives of the Reference Funds are and will be described in theprospectuses of the RSP Funds and are and will be achieved through investmentprimarily in foreign securities. If available, the investment strategies of theReference Funds, as set forth in the most recently filed prospectus of suchReference Funds at such time, will be disclosed in the prospectuses of the RSPFunds. The risk factors of the Reference Funds are and will also be described inthose prospectuses.

15. A Counterparty is expected (but is not obligated) to hedge its obligations under theforward contracts by investing an amount equal to its exposure to the net assets ofthe RSP Funds in securities of the relevant Reference Funds ("Hedge Units").

16. Counsel will ensure that there is no duplication of management fees as between theRSP Funds and the Reference Funds. This will be achieved by Counsel (i)  waivingall or a portion of the management fee which it would otherwise earn at the RSPFunds level with respect to such RSP Funds' direct investment in, and anyCounterparties' holdings as a hedge of, securities of the Reference Fund managedby Counsel and/or (ii) ensuring that the amounts payable by or to the Funds underthe forward are adjusted to eliminate the duplication of management fees.

17. Where investments are made in units of a Reference Fund other than the RelatedReference Fund, the Reference Fund's manager has agreed to pay to the RSPFund a management fee rebate distribution on such units. This management feerebate distribution is being made so that, when added to the management feecharged directly to the RSP Fund, the total effective management fee chargedindirectly to an investor in the RSP Fund will not exceed an annual fee of 2.50%(the stated management fee of the RSP Fund).

18. The Reference Funds of the RSP Funds other than Counsel Focus RSP Portfolioare not currently invested in other mutual funds. The RSP Funds will not invest inany mutual fund whose investment objective includes investing in other mutualfunds.

Counsel Select Sector Portfolio and the Select Sector Investments

19. The Prospectus discloses that Counsel Select Sector Portfolio seeks long-termgrowth of capital primarily by investing in four global equity sectors through "fund-on-fund" arrangements with four mutual funds - the two AIM Reference Fund andthe two C.I. Reference Funds.

20. The Prospectus discloses that Counsel Select Sector Portfolio will invest 25% (the"Fixed Percentage") of its portfolio assets in each of the AIM Reference Funds andC.I. Reference Funds. The Fixed Percentage may vary by 2.5% up or down duesolely to market fluctuations.

21. The Select Sector Investments will be without sales or redemption charges andwithout duplication of management fees. Counsel pays the investmentmanagement fees to AIM and C.I. from its management fee. AIM and C.I. haveagreed to arrange for the AIM Reference Funds and the C.I. Reference Funds,respectively, to pay to Counsel Select Sector Portfolio a management fee rebatedistribution (calculated and accrued daily and paid monthly) in accordance withtheir investment management agreements with Counsel. This management feerebate distribution is being made so that, when added to the management feecharged directly to Counsel Select Sector Portfolio, the total effective managementfee indirectly charged to an investor in Counsel Select Sector Portfolio will notexceed an annual fee of 2.50% (the stated management fee of this Portfolio).

22. Counsel will amend the relevant prospectus and provide 60 days' notice toinvestors or obtain approval of unitholders of Counsel Select Sector Portfolio in theevent that it changes its Reference Funds or the Fixed Percentage investment ineach of the Reference Funds.

23 The AIM Reference Funds and the C.I. Reference Funds are not currently investedin other mutual funds. Counsel Select Sector Portfolio will not invest in any mutualfund whose investment objective includes investing in other mutual funds.

Generally

24. Except to the extent evidenced by this Decision and specific approvals granted bythe Canadian securities administrators pursuant to National Instrument 81-102, theDirect Investments and the Select Sector Investments have been structured tocomply with the investment restrictions of the Legislation and National Instrument81-102.

25. In the absence of this Decision, each of the RSP Funds and Counsel Select SectorPortfolio is prohibited from knowingly making and holding an investment therelevant Reference Fund in which the mutual fund, alone or together with one ormore related mutual funds, is a substantial securityholder.

26. In the absence of this Decision, the Legislation requires Counsel to file a report onevery purchase or sale of securities of the relevant Reference Fund by the RSPFunds or Counsel Select Sector Portfolio.

27. The Direct Investments and the Select Sector Investments are in the best interestsof the RSP Funds and the Reference Funds and represent the business judgmentof "responsible persons" (as defined in the Legislation), uninfluenced byconsiderations other than the best interests of the RSP Funds and the ReferenceFunds.

AND WHEREAS under the System, this MRRS Decision Document evidences theDecision of each Decision Maker;

AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the jurisdiction to make the Decisionhas been met;

THE DECISION of the Decision Makers pursuant to the Legislation is that theApplicable Requirements shall not apply to the RSP Funds, Counsel Select SectorPortfolio or Counsel, as the case may be, in respect of the Direct Investments and SelectSector Investments.

PROVIDED THAT IN RESPECT OF the investment by the RSP Funds in securitiesof the Reference Funds:

1. the Decision, as it relates to the jurisdiction of a Decision Maker, willterminate one year after the publication in final form of any legislation or ruleof that Decision Maker dealing with matters in section 2.5 of NationalInstrument 81-102.

2. the Decision shall only apply in respect of the Direct Investments made bythe RSP Funds in compliance with the following conditions:

a) the RSP Funds and the Related Reference Fund are under commonmanagement and the securities of the RSP Funds and the ReferenceFunds are offered for sale in the jurisdiction of the Decision Makerpursuant to a prospectus which has been filed with and accepted bythe Decision Maker;

b) each RSP Fund restricts its aggregate direct investment in securitiesof its Reference Fund(s) to a percentage of its assets that is withinthe Permitted Limit;

c) the prospectus of each RSP Fund describes the intent of the RSPFunds to invest subject to the Target Percentages in the ReferenceFunds;

d) with respect to the RSP Funds other than Counsel Focus RSPPortfolio, the Reference Funds and the Target Percentages may notbe changed unless and until the relevant prospectus is amended ora new prospectus is filed, and the securityholders of such RSP Fundshave either been given at least 60 days written notice of the change,or the prior approval of the securityholders has been obtained at ameeting of securityholders of such RSP Funds called for thatpurpose;

e) the investments by each RSP Fund in securities of its ReferenceFund(s) are compatible with the fundamental investment objectivesof the RSP Fund;>

f) no sales charges are payable by the RSP Funds in relation to theirpurchases of securities of the Reference Funds;>

g) there are compatible dates for the calculation of the net asset valueof the RSP Funds and the Reference Funds for the purpose of theissue and redemption of the securities of such mutual funds;>

h) no redemption fees or other charges are charged by the ReferenceFunds in respect of the redemption by the RSP Funds of securities ofthe Reference Funds owned by the RSP Funds;>

i) the arrangements between or in respect of the RSP Funds and theReference Funds are such as to avoid the duplication of managementfees;>

j) no fees and charges of any sort are paid by the RSP Funds or by theReference Funds or by the manager, principal distributor, affiliate orassociate of any of the foregoing entities to anyone in respect of theRSP Funds' purchase, holding or redemption of the securities of theReference Funds other than the management fees as addressed inrepresentations #16 & 17 above;>

k) in the event of the provision of any notice to securityholders of theReference Fund of an RSP Fund, as required by the constatingdocuments of or the laws applicable to such Reference Fund, suchnotice will also be delivered to the securityholders of the RSP Fund;all voting rights attached to the securities of the Reference Fund,which are owned by the RSP Fund, will be passed through to thesecurityholders of the RSP Fund;

l) in the event that a meeting is called for the securityholders of aReference Fund of an RSP Fund, all of the disclosure and noticematerial prepared in connection with such meeting that are receivedby the RSP Fund will be provided to the securityholders of the RSPFund, and such securityholders will be entitled to direct arepresentative of the RSP Fund to vote the RSP Fund's holding in theReference Fund in accordance with their direction; the representativeof the RSP Fund will not be permitted to vote the RSP Fund'sholdings in the Reference Fund except to the extent thesecurityholders of the RSP Fund so direct;

m) in addition to receiving the annual and, upon request, the semi-annual financial statements, of the RSP Funds, securityholders ofeach RSP Fund will receive the annual and, upon request, the semi-annual financial statements, of its Reference Fund(s) in either acombined report, containing both financial statements, or in aseparate report containing the Reference Fund(s) financialstatements;

n) to the extent that the RSP Funds and the Reference Funds do notuse a combined simplified prospectus and annual information formcontaining disclosure about the RSP Funds and their ReferenceFunds, copies of the simplified prospectus and annual informationform of the Reference Funds may be obtained upon request by asecurityholder of the RSP Funds.>

AND PROVIDED THAT IN RESPECT OF the investment by Counsel Select SectorPortfolio directly in securities of the AIM Reference Funds and C.I. Reference Funds:

1. the Decision, as it relates to the jurisdiction of a Decision Maker, willterminate one year after the publication in final form of any legislation or ruleof that Decision Maker dealing with matters in section 2.5 of NationalInstrument 81-102.

2. the Decision shall only apply in respect of the Select Sector Investmentsmade by Counsel Select Sector Portfolio in compliance with the followingconditions:

 

a) the securities of Counsel Select Sector Portfolio and the AIMReference Funds and C.I. Reference Funds are offered for sale in thejurisdiction of the Decision Maker pursuant to prospectuses that havebeen filed with and accepted by the Decision Maker;

b) the Select Sector Investments are compatible with the fundamentalinvestment objective of Counsel Select Sector Portfolio;

c) the prospectus of the Counsel Select Sector Portfolio describes theintent of Counsel Select Sector Portfolio to invest in the AIMReference Funds and C.I. Reference Funds;

 

d) Counsel Select Sector Portfolio invests its assets (exclusive of cashand cash equivalents) in each of the AIM Reference Funds and C.I.Reference Funds in the specified Fixed Percentages, which may varyby plus or minus 2.5% (the "Permitted Deviation") to account formarket fluctuations and without any action being taken by CounselSelect Sector Portfolio to increase or decrease its investments ineach of the AIM Reference Funds and C.I. Reference Funds withinthe Permitted Deviation;

e) the Fixed Percentages and the AIM Reference Funds and C.I.Reference Funds in which Counsel Select Sector Portfolio may investmay not be changed unless and until Counsel Select Sector Portfolioamends its prospectus to reflect the proposed change or files arenewal prospectus reflecting such change, and its unitholders aregiven at least 60 days' prior written notice of the proposed change;

f) if at any time the investment of Counsel Select Sector Portfolio ineach of the AIM Reference Funds and C.I. Reference Funds exceeds(or declines below) the Permitted Deviation, Counsel will make thenecessary changes in such fund's investment portfolio at its nextvaluation date in order to re-balance its investments in accordancewith the Fixed Percentages;

g) no sales charges are payable by Counsel Select Sector Portfolio inrelation to its purchases of securities of the AIM Reference Funds andC.I. Reference Funds;

h) there are compatible dates for the calculation of the net asset valueof Counsel Select Sector Portfolio and the AIM Reference Funds andC.I. Reference Funds for the purpose of the issue and redemption ofthe securities of such mutual funds;

i) no redemption fees or other charges are charged by the AIMReference Funds and C.I. Reference Funds in respect of theredemption by Counsel Select Sector Portfolio of securities of the AIMReference Funds and C.I. Reference Funds owned by Counsel SelectSector Portfolio;

j) the arrangements between or in respect of Counsel Select SectorPortfolio and the AIM Reference Funds and C.I. Reference Funds aresuch as to avoid the duplication of management fees;

k) no fees and charges of any sort are paid by Counsel Select SectorPortfolios and the AIM Reference Funds and C.I. Reference Funds,by their respective managers or principal distributors, or by anyaffiliate or associate of any of the foregoing entities to anyone inrespect of Counsel Select Sector Portfolio's purchase, holding orredemption of the securities of the AIM Reference Funds and C.I.Reference Funds;

l) in the event of the provision of any notice to securityholders of an AIMReference Fund and C.I. Reference Fund, as required by theconstating documents of or the laws applicable to such AIMReference Fund and C.I. Reference Fund, such notice will also bedelivered to the securityholders of the RSP Fund; all voting rightsattached to the securities of the AIM Reference Funds and C.I.Reference Funds that are directly owned by Counsel Select SectorPortfolio will be passed through to the security holders of CounselSelect Sector Portfolios;

m) in the event that a meeting is called for the securityholders of an AIMReference Fund and C.I. Reference Fund, all of the disclosure andnotice material prepared in connection with such meeting andreceived by Counsel Select Sector Portfolio will be provided to itssecurityholders, and such security holders will be entitled to direct arepresentative of Counsel Select Sector Portfolio to vote its holdingsin the AIM Reference Funds and C.I. Reference Funds in accordancewith their direction; the representative of Counsel Select SectorPortfolio will not be permitted to vote its holdings in the AIMReference Funds and C.I. Reference Funds except to the extent thesecurityholders of Counsel Select Sector Portfolio so direct;

n) in addition to receiving the annual and, upon request, the semi-annual financial statements, of Counsel Select Sector Portfolio, itssecurity holders will receive the annual and, upon request, the semi-annual financial statements, of the AIM Reference Funds and C.I.Reference Funds in either a combined report containing financialstatements of Counsel Select Sector Portfolio and the AIM ReferenceFunds and C.I. Reference Funds, or in a separate report containingthe financial statements of the AIM Reference Funds and C.I.Reference Funds; and

o) to the extent that Counsel Select Sector Portfolio and the AIMReference Funds and C.I. Reference Funds do not use a combinedsimplified prospectus and annual information form containingdisclosure about Counsel Select Sector Portfolio and the AIMReference Funds and C.I. Reference Funds, copies of the simplifiedprospectus and annual information form of the AIM Reference Fundsand C.I. Reference Funds may be obtained upon request by asecurityholder of Counsel Select Sector Portfolio.

August 4th, 2000.

"J. A. Geller"       "R. Stephen Paddon"