Exemption Orders (Discretionary)
COUNSEL GROUP OF FUNDS INC.
2001 BCSECCOM 588
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Relief granted from certain of the self-dealing prohibitions and reporting requirements regarding investments for specified purposes by mutual funds in securities of other mutual funds, some of which are not under common management, subject to certain conditions.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(b), 123, 126(a), 126(d) and 130
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, NEW BRUNSWICK, NOVA SCOTIA, PRINCE EDWARD ISLAND 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.
AND
COUNSEL SELECT CANADA PORTFOLIO
COUNSEL SELECT VALUE PORTFOLIO
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the “Decision Maker”) in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland (the "Participating Jurisdictions”) has received an application (the “Application”) from Counsel Group of Funds Inc., (the "Manager") in its own capacity and on behalf of Counsel Select Canada Portfolio, Canada Select Value Portfolio and other mutual funds (the "Top Funds") to be created and managed by the Manager after the date of this decision ("Decision") having an investment objective or strategy of investing directly in other prospectus-qualified, specified mutual funds for a Decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following prohibitions or requirements under the Legislation (the “Applicable Requirements”) shall not apply to the Top Funds or the Manager, as the case may be, in connection with the investments by the Top Funds directly in securities of Mackenzie Cundill Canadian Security Fund, Fidelity Disciplined Equity Fund, Synergy Canadian Momentum Class, AGF International Stock Class, Counsel Focus Value Portfolio and such other prospectus-qualified, specified mutual funds which the Top Funds may invest in from time to time (the "Underlying Funds"):
1. the restrictions contained in the Legislation prohibiting a mutual fund from knowingly making and 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; and
2. the requirements contained in the Legislation requiring the management company or, in British Columbia, a mutual fund manager, to file a report relating to a purchase or sale of securities between the mutual fund and any related person or company, or any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, the mutual fund is a joint participant with one or more of its related persons or companies.
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the principal regulator for this Application;
AND WHEREAS it has been represented by the Manager to the Decision Makers that:
(a) The Manager is a corporation established under the laws of the Province of Ontario and will act as the manager and promoter of the Top Funds.
(b) The Top Funds will be open-end mutual fund trusts established under the laws of the Province of Ontario. Units of the Top Funds will be qualified for distribution under a (final) simplified prospectus and annual information form (collectively, the "Prospectus") to be filed with and accepted by the Decision Maker in each of the Participating Jurisdictions.
(c) The Top Funds will be reporting issuers in each of the Participating Jurisdictions and are not in default of any requirements of the Legislation.
(d) To achieve their respective investment objectives, each Top Fund will invest all their assets, excluding cash and cash equivalents held to meet redemptions and expenses, in securities of the Underlying Funds. The investment objective of an Underlying Fund will align with the investment objective of the corresponding Top Fund.
(e) The amount a Top Fund may invest in an Underlying Fund is referred to as its fixed percentage ("Fixed Percentage"). A Fixed Percentage (referred to in the Prospectus as an “Investment Allocation”) has been established for each of the Underlying Funds which is subject to a +/-2.5% deviation (the "Permitted Range") due solely to market fluctuations.
(f) The Prospectus for the Top Funds will disclose the name, investment objective, investment strategy, risk and restrictions of the Top Funds and the Underlying Funds, and the Fixed Percentage and the Permitted Range for each Underlying Fund. Where an Underlying Fund or Fixed Percentage is changed, the Manager will amend the Prospectus in accordance with securities legislation to reflect this significant change, or will file a new simplified prospectus reflecting the significant change within ten days thereof, and will provide 60 days’ notice of the change to unitholders of the relevant Top Fund.
(g) The Underlying Funds are or will be open-end mutual fund trusts or a class of shares of a mutual fund corporation. The Underlying Funds are or will be established under the laws of a Province of Canada. Securities of the Underlying Funds are or will be qualified in the jurisdiction of a Decision Maker for distribution pursuant to a simplified prospectus and annual information form which has been filed with and accepted by the Decision Makers. The Underlying Funds are or will be reporting issuers in each of the Participating Jurisdictions and are not in default of any requirement of the Legislation.
(h) The Top Funds will not invest in any mutual fund whose investment objective includes investing in other mutual funds.
(i) There are compatible dates for the calculation of the net asset value of the Top Funds and the Underlying Funds for the purpose of the issue and redemption of securities of such mutual funds.
(j) The arrangements between the Top Funds and Underlying Funds will avoid the duplication of management fees and operating expenses. Either no management fee will be charged by the Underlying Funds’ manager in connection with the securities held by the Top Fund or the management fee charged by the Underlying Funds’ manager will be reduced through the payment of a management fee distribution or the use of a class of securities with a lower management fee than is available to the general investing public, with the result that, except as described below, the aggregate of the management fees payable by the Top Fund at the Underlying Fund level and the management fee payable to the Top Fund level will not exceed the management fee which is otherwise charged indirectly to the general investing public at the Underlying Fund level.
(k) There will be no charges levied on the purchase or redemption of securities of an Underlying Fund by a Top Fund and no trail commissions or other payments will be paid or received in respect of securities of the Underlying Funds held by the Top Funds.
(l) The voting rights attaching to securities of the Underlying Funds will be passed through by the Manager to unitholders of the applicable Top Fund. In the event of any notice to securityholders of an Underlying Fund being given in respect of a matter for which notice is required by law or the constating documents of an Underlying Fund, such notice will also be delivered to the unitholders of the applicable Top Fund. If a securityholders’ meeting is called for an Underlying Fund (other than regular business conducted at an annual meeting of an Underlying Fund which is a corporation), all of the disclosure and notice materials delivered in connection with such meeting will also be provided to the unitholders of the affected Top Fund and such unitholders will be entitled to direct how their pro rata share of the Top Fund's securities in the applicable Underlying Fund are to be voted. The Manager will not be permitted to vote its holdings in the applicable Underlying Fund except as directed by unitholders of the Top Fund.
(m) Unitholders of a Top Fund will receive the audited annual, and upon request, the semi-annual financial statements of the Top Funds which will include appropriate summary disclosure in respect of the Top Fund’s holding of securities of the Underlying Funds in the financial statements of each Top Fund.
(n) Except to the extent evidenced by this Decision and specific approvals granted or to be granted by the Decision Makers pursuant to National Instrument 81-102 (“NI 81-102"), the investment by each Top Fund in an Underlying Fund will be structured to comply with the investment restrictions of the Legislation and NI 81-102.
(o) In the absence of this Decision, the Legislation requires the Manager to file a report on every purchase or sale of securities of the Underlying Funds by the Top Funds.
(p) In the absence of this Decision, pursuant to the Legislation, each Top Fund is prohibited from (a) knowingly making an investment in securities of the Underlying Funds to the extent that a Top Fund, either alone or in combination with other mutual funds managed by the Manager, is a substantial securityholder; and (b) knowingly holding an investment referred to in subsection (a) hereof. As a result, in the absence of this Decision, each Top Fund would be required to divest itself of any investments referred to in subsection (a) hereof.
(q) The investments by each of the Top Funds in securities of the Underlying Funds represent the business judgment of “responsible persons” (as defined in the Legislation), uninfluenced by considerations other than the best interests of each of the Top Funds.
AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
AND WHEREAS each of the Decision Makers are 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 pursuant to the Legislation is that the Applicable Requirements shall not apply so as to prevent the Top Funds or the Manager, as the case may be, from making and holding an investment in securities of the Underlying Funds or require the Manager to file a report relating to the purchase or sale of such securities;
PROVIDED IN EACH CASE THAT:
1. The Decision as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publication in final form of any legislation or rule of that Decision Maker dealing with the matters in subsection 2.5 of NI 81-102; and
2. the Decision shall only apply if, at the time a Top Fund makes or holds an investment in its Underlying Funds, the following conditions are satisfied:
(a) the securities of both the Top Funds and the Underlying Funds are being offered for sale in the jurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information form which have been filed with and accepted by the Decision Maker;
(b) the investment by a Top Fund in the Underlying Funds is compatible with the investment objective of the Top Fund;
(c) the investment objective of the Top Fund discloses that the Top Fund invests in securities of other mutual funds;
(d) the Prospectus discloses the intent of the Top Fund to invest its assets (exclusive of cash and cash equivalents) in securities of the Underlying Funds, the names of the Underlying Funds, the Fixed Percentages and the Permitted Ranges within which such Fixed Percentages may vary;
(e) the Underlying Funds are not mutual funds whose investment objective includes investing directly or indirectly in other mutual funds;
(f) the Top Funds’ holdings of securities of the Underlying Funds do not deviate from the Permitted Ranges;
(g) any deviation from the Fixed Percentages is caused by market fluctuations only;
(h) if an investment by a Top Fund in any of the Underlying Funds has deviated from the Permitted Ranges as a result of market fluctuations, the Top Fund’s investment portfolio was re-balanced to comply with the Fixed Percentage on the next day on which the net asset value was calculated following the deviation;
(i) if the Fixed Percentages or the Underlying Funds which are disclosed in the Prospectus are changed, either the Prospectus has been amended in accordance with securities legislation to reflect this significant change, or a new simplified prospectus reflecting the significant change has been filed within ten days thereof, and the securityholders of the Top Funds have been given at least 60 days’ notice of the change;
(j) there are compatible dates for the calculation of the net asset value of the Top Funds and the Underlying Funds for the purpose of the issue and redemption of the securities of such mutual funds;
(k) no sales charges are payable by the Top Funds in relation to their purchases of securities of the Underlying Funds;
(l) no redemption fees or other charges are charged by an Underlying Fund in respect of the redemption by a Top Fund of securities of the Underlying Fund owned by the Top Fund;
(m) no fees or charges of any sort are paid by a Top Fund and the Underlying Funds, by their respective managers or principal distributors, or by any affiliate or associate of any of the foregoing entities, to anyone in respect of the purchase, holding or redemption by a Top Fund of the securities of the Underlying Funds;
(n) the arrangements between or in respect of the Top Funds and the Underlying Funds are such as to avoid the duplication of management fees;
(o) any notice provided to securityholders of an Underlying Fund, as required by applicable laws or the constating documents of that Underlying Fund, has been delivered by a Top Fund to its securityholders along with all voting rights attached to the securities of the Underlying Fund which are directly owned by the Top Fund;
(p) all of the disclosure and notice material prepared in connection with a meeting of securityholders of an Underlying Fund and received by a Top Fund has been provided to its securityholders, the securityholders have been permitted to direct a representative of the Top Fund to vote its holdings in the Underlying Fund in accordance with their direction, and the representative of the Top Fund has not voted its holdings in the Underlying Funds except to the extent the securityholders of the Top Fund have directed;
(q) in addition to receiving the annual and, upon request, the semi-annual financial statements, of a Top Fund, securityholders of the Top Funds have received appropriate summary disclosure in the financial statements of each Top Fund in respect of that Top Fund’s holdings of securities of the Underlying Funds in the financial statements of the Top Funds; and
(r) to the extent that the Top Funds and the Underlying Funds do not use a combined simplified prospectus and annual information form containing disclosure about the Top Funds and the Underlying Funds, copies of the simplified prospectus and annual information form of the Underlying Funds have been provided upon request to securityholders of the Top Funds and this right is disclosed in the Prospectus of the Top Funds.
DATED this 30th day of May , 2001.
John Geller, Q.C. Robin W. Korthals