Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of Mutual Fund Mergers -- approval required because the 3 proposed mergers do not meet the criteria for pre-approval -- fee structures of terminating funds and corresponding continuing funds not substantially similar.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1)(a)(ii).

January 7, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(THE "JURISDICTION")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATION IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

COUNSEL PORTFOLIO SERVICES INC.

(THE "FILER")

AND

IN THE MATTER OF

COUNSEL SELECT CANADA,

COUNSEL SELECT AMERICA AND

COUNSEL SELECT INTERNATIONAL

(each a "TERMINATING FUND" and collectively,

the "TERMINATING FUNDS")

AND

IN THE MATTER OF

COUNSEL CANADIAN GROWTH,

COUNSEL U.S. GROWTH AND

COUNSEL INTERNATIONAL GROWTH

(each a "CONTINUING FUND" and collectively,

the "CONTINUING FUNDS")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction (the "Legislation") approving the Proposed Mergers (as defined below) of the Terminating Funds into the corresponding Continuing Funds (the Terminating Funds and the Continuing Funds are referred to as the "Funds" and each referred to as a "Fund") pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") (the "Approval Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a Passport Application):

(a) the Ontario Securities Commission is the principal regulator for this application ("Principal Regulator"); and

(b) The Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon (together with the Principal Regulator, the "Decision Makers").

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation governed by the laws of Ontario and is registered as a portfolio manager in Ontario.

2. The Filer is the manager and trustee of the Funds, each of which is an open-ended mutual fund trust governed under the laws of Ontario.

3. Series A, D, and I units of the Terminating Funds and Series A, D, E, F, I and P units of the Continuing Funds are available and offered for sale in all provinces and territories of Canada other than Quebec under a simplified prospectus and annual information form dated October 22, 2009, as amended.

4. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada other than Quebec and are not in default of securities legislation in any of these Canadian provinces or territories.

5. Each of the Funds follows the standard investment restrictions and practices in NI 81-102, except pursuant to the terms of any exemption that has been previously obtained in respect of that Fund.

6. The net asset value for each series of securities of the Funds is calculated on a daily basis on each day the Toronto Stock Exchange is open for trading.

7. The Filer proposes to merge the Terminating Funds into the Continuing Funds as follows (each a "Proposed Merger" or collectively, the "Proposed Mergers"):

Terminating Fund
Continuing Fund
 
Counsel Select
Counsel Canadian
Canada
Growth
 
Counsel Select
Counsel U.S.
America
Growth
 
Counsel Select
Counsel
International
International
Growth

8. The investment objectives of the Terminating Funds are compatible with those of the corresponding Continuing Funds.

9. Approval of the Proposed Mergers is required because the Proposed Mergers do not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 because contrary to subsection 5.6(1)(a)(ii) of NI 81-102, a reasonable person could consider that the fee structures of the Terminating Funds are not "substantially similar" to their corresponding Continuing Funds.

10. Except as noted above, the Proposed Mergers will otherwise comply with all other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

11. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, an Independent Review Committee (the "IRC") has been appointed for the Funds. The Filer presented the terms of the Proposed Mergers to the IRC for a recommendation. The IRC reviewed the Proposed Mergers and recommended that it be put to unitholders of the Terminating Funds and Counsel U.S. Growth for their consideration on the basis that the Proposed Mergers would achieve a fair and reasonable result for the Terminating Funds and Counsel U.S. Growth.

12. At the special meetings ("Special Meetings") of unitholders to be held on or about January 25, 2010, unitholders of all mutual funds managed by the Filer (the "Counsel Funds") will be asked to vote on a proposal ("Administration Fee Proposal") to change the basis of calculating the operating expenses of Counsel Funds to a fixed rate administration fee ("Fixed Administration Fee").

13. At the Special Meetings, unitholders of the Terminating Funds and Counsel U.S. Growth will be asked to approve the Proposed Mergers. For each Proposed Merger that is approved, following the merger, unitholders in each Terminating Fund will become unitholders in its corresponding Continuing Fund and adopt the Continuing Fund's investment objectives, strategies, and fee structure (i.e. if unitholders voted in favour of the Administration Fee Proposal for the Continuing Fund, then the Continuing Fund will adopt the Fixed Administration Fee structure. If unitholders voted against the Administration Fee Proposal for the Continuing Fund, then the Continuing Fund will adopt the current operating expense methodology structure). For each Proposed Merger that is approved, unitholders will receive the corresponding series of units of the Continuing Funds in exchange for their units of the Terminating Funds.

14. The Filer will pay the costs of holding the Special Meetings and solicitation of proxies in connection with the Proposed Mergers.

15. As at December 7, 2009, Counsel U.S. Growth had net assets of approximately $13.31 million and Counsel Select America had net assets of approximately $157.93 million. Since Counsel U.S. Growth is substantially smaller than Counsel Select America, the Filer has decided to also convene a meeting of unitholders of Counsel U.S. Growth to consider and vote on the Proposed Merger of Counsel Select America into Counsel U.S. Growth. However, the Filer does not consider the Proposed Merger of Counsel Select America into Counsel U.S. Growth to be a "material change" to Counsel U.S. Growth.

16. If the approval of unitholders of a Terminating Fund or Counsel U.S. Growth is not received in its Special Meeting, then that Proposed Merger will not proceed.

17. Subject to the required approvals of the Decision Makers and the unitholders of the Funds, the Proposed Mergers will be implemented on or about February 5, 2010 (the "Effective Date").

18. Terminating Fund unitholders will continue to have the right to redeem their securities or exchange their securities for securities of any other Counsel Fund at any time up to the close of business on the business day immediately preceding the Effective Date. Terminating Fund unitholders who switch their units for units of other Counsel Funds will not incur any charges. Unitholders who redeem units may be subject to redemption charges.

19. A tailored prospectus, which consists of the current Part A and the Part B of the simplified prospectus of the Continuing Funds, and a management information circular describing the Proposed Mergers and how a Terminating Fund investor can access or obtain the most recent interim and annual financial statements of a corresponding Continuing Fund was filed on SEDAR and was mailed to unitholders of record of the Terminating Funds and Counsel U.S Growth, as at December 18, 2009, on or before January 4, 2010.

20. Following the Proposed Mergers, the Continuing Funds will continue as publicly offered open-ended mutual funds.

21. Following the Proposed Mergers, material change reports and an amendment to the simplified prospectus and annual information form of the Funds will be filed.

22. The Filer submits that the Proposed Mergers will result in the following benefits:

a) Lower management fees: The management fee of each Continuing Fund is lower than the management fee of the corresponding Terminating Fund.

b) Larger net assets: Counsel Canadian Growth and Counsel International Growth have significantly larger net assets than Counsel Select Canada and Counsel Select International, respectively. Following the Proposed Mergers, the Filer expects that Counsel U.S. Growth will have significantly larger net assets than its current net assets. As such, the Filer expects that after the Proposed Mergers, unitholders of Counsel Select Canada and Counsel Select International may enjoy enhanced portfolio diversification and liquidity, and Counsel Select America will continue to enjoy these benefits.

c) Similar investment objectives: For each Proposed Merger, both the Terminating Fund and the Continuing Fund operate using similar investment objectives: (i) Counsel Select Canada and Counsel Canadian Growth both invest in Canadian equity and fixed income securities; (ii) Counsel Select America and Counsel U.S. Growth both invest in U.S. equity securities; and (iii) Counsel Select International and Counsel International Growth both invest in international equity securities.

Decision

The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.

The decision of the Principal Regulator under the Legislation is that the Approval Sought is granted.

"Darren McKall"
Assistant Manager
Ontario Securities Commission