Exemption for certain mutual funds from theself-dealing provisions to permit the mutual funds to investin: a) insurance companies when the mutual funds are involvedwith the insurance companies under certain insurance productarrangements and b) banks when the mutual funds are involvedin counterparty arrangements with the banks regarding RSP Clonefund arrangements.
Applicable Statutory Provisions Cited
Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 111(2)(a), 111(2)(c)(ii), 111(3) and 113.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN,
ONTARIO, NOVA SCOTIA AND NEWFOUNDLANDAND LABRADOR
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
AIM FUNDS MANAGEMENT INC.AND
THE FUNDS LISTED IN SCHEDULE"A"
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatoryauthority or regulator (the "Decision Maker") in eachof the provinces of British Columbia, Alberta, Saskatchewan,Ontario, Nova Scotia and Newfoundland and Labrador (the "Jurisdictions")has received an application (the "Application") fromAIM Funds Management Inc. ("AIM") in its own capacityand on behalf of mutual funds it manages and listed in Schedule"A" (the "Current Funds") as well as suchother funds as AIM may establish and advise from time to time(the "Future Funds") (the Current Funds and FutureFunds being hereinafter referred to individually as a "Fund"and collectively as the "Funds") for a decision (the"Decision") pursuant to the securities legislationof the Jurisdictions (the "Legislation") that thefollowing prohibitions under the Legislation which result froman investment by an Insurance Company or Bank (both definedbelow) or an affiliate of an Insurance Company or Bank in thecircumstances set out in this Decision do not apply to investmentsby each of the Funds:
(a) the provision prohibiting a mutual fundfrom knowingly making or holding an investment in any personor company which is a substantial security holder of the mutualfund, its management company or distribution company (the"Substantial Securityholder Restriction");
(b) the provision prohibiting a mutual fundfrom knowingly making or holding an investment in an issuerin which a substantial securityholder of the mutual fund,its management company or its distribution company has a significantinterest (the "Significant Interest Restriction");
AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this Application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;
AND WHEREAS it has been represented byAIM to the Decision Makers that:
1. The Funds are, or will be, open-ended mutualfund trusts established, or classes or series of mutual fundcorporations incorporated in Canada.
2. AIM is, or will, serve as the manager ofthe Funds.
3. The securities of the Funds are, or willbe, offered for sale in some or all of the provinces and territoriesof Canada pursuant to one or more simplified prospectus(es)and annual information form(s). Each of the Funds is or willbe a reporting issuer under the Legislation and is not ona list of defaulting issuers maintained under the Legislation.
4. The issuers in which investment by theFunds is, or may in the future be, prohibited are a bank listedin Schedule I or II of the Bank Act (Canada), or an authorizedforeign bank listed in Schedule III of the Act ( a "Bank")or a company licensed to do business as an insurance companyin any Jurisdiction (an "Insurance Company") andissuers in which a Bank or an Insurance Company holds a significantinterest (collectively, the "Affected Issuers" andindividually, an "Affected Issuer") resulting fromarrangements under which the Bank or Insurance Company orone of their respective affiliates makes a passive investmentin one or more Funds for commercial purposes and not withany intent to influence the investment behaviour of AIM and/orthe Funds.
Investments in Insurance Companies that areSubstantial Securityholders of the Funds as a Result of InsuranceProduct Arrangements
5. There are various insurance company sponsoredproducts that AIM and the Funds are involved in and amongthem are: 1) individual variable insurance contracts, 2) definedcontribution pension plans, and 3) Universal Life products(collectively the "Insurance Product Arrangements").
6. Under the first arrangement, an investorpurchases an individual variable insurance contract (an "IVIC")from an Insurance Company. Among other features, the IVICentitles the investor to allocate the investor's investmentamong one or more segregated funds.
7. Under the second arrangement, an employeeof a company may participate in a defined contribution pensionplan ("DC Plan") sponsored by his or her employer.In that case, the employee, as the DC Plan beneficiary, willgenerally be able to select from among segregated funds offeredby the plan provider, typically an insurance company, whichare not available to other purchasers. DC Plans usually entitlethe Plan beneficiary to periodically re-allocate the capitalamong various investment vehicles.
8. Under the third arrangement, a person purchasesa Universal Life insurance policy from an Insurance Company.Among other features, the policy entitles the person to allocatea portion of the person's insurance premiums among one ormore segregated funds.
9. AIM has entered or will enter into InsuranceProduct Arrangements relationships with various InsuranceCompanies under which the Insurance Company invests in theFunds in accordance with an investment decision made by aninvestor involved in an Insurance Product Arrangement.
10. Under applicable insurance legislationin each of the Insurance Product Arrangements, the investmentin the Fund must appear on the books of the Insurance Company.
11. An Insurance Company has little or nocontrol over the number of securities of the Fund it mustpurchase and redeem on any given day as this is directed bythe collective decisions of investors. Given this, an InsuranceCompany's investment in a Fund could be viewed as a passiveinvestment.
12. Under the Legislation, an Insurance Companyand each of its affiliates becomes a substantial securityholderin a Fund if it holds more than 20% of the voting securitiesof the Fund.
13. In the absence of this Decision, a Fundcould not invest or hold securities of an Insurance Companyor any of its affiliates if the Insurance Company became asubstantial securityholder in the Fund as a result of an InsuranceCompany Arrangement.
14. Currently, AIM American Premier Classis prohibited from investing in securities of Manulife Financialor any other issuer which is an Affected Issuer solely becauseManulife Financial holds in excess of 20% of the voting securitiesof the Fund and therefore is a substantial securityholder.In addition, AIM American Mid-Cap Class is prohibited frominvesting in Manulife Financial because Manulife Financialholds in excess of 20% of the Fund.
15. In the future, Manulife Financial or otherInsurance Companies which AIM currently does business withor may do business with may hold more than 20% of the votingsecurities in a Fund as a passive investment under an InsuranceProduct Arrangement. At such time, a Fund may want to purchaseor continue to hold securities of such Insurance Companieswhere it is in the best interests of the Fund but will beprohibited from doing so by the Substantial SecurityholderRestriction in the absence of this Decision.
16. Sun Life Financial Inc. owns 100% of SunLife Assurance Company of Canada which has entered into InsuranceProduct Arrangements with AIM. Sun Life Financial Inc. togetherwith its affiliates beneficially own in excess of 20% of TrimarkCanadian Fund. Sun Life Financial Inc. and its affiliatesare considered a substantial securityholder of Trimark CanadianFund since together they beneficially own more than 20% ofTrimark Canadian Fund. Sun Life Financial Inc. also owns 30%of the voting securities of CI Funds Inc. which is deemeda significant interest because it is more than 10% of thevoting securities of that issuer.
17. In the absence of this Decision, TrimarkCanadian Fund is prohibited from investing in Sun Life FinancialInc. and Sun Life Assurance Company of Canada as a resultof the Substantial Securityholder Restriction. Further, asa result of the Significant Interest Restriction, TrimarkCanadian Fund is prohibited from investing in CI Funds Inc.in the absence of this Decision.
Investments in Banks that are Counterpartiesto Forward Contracts with AIM in Connection with RSP Clone Funds
18. AIM manages a number of RSP Clone Funds.Each RSP Clone Fund seeks to achieve its investment objectivewhile ensuring that its units do not constitute "foreignproperty" under the Income Tax Act (Canada) (the "TaxAct") for registered retirement savings plans, registeredretirement income plans, and deferred profit sharing plans("Registered Plans").
19. To achieve its investment objective, eachRSP Clone Fund will invest its assets in securities of a specifiedunderlying fund (the "Underlying Funds") such thatits units will, in the opinion of tax counsel to the RSP CloneFunds, be "qualified investments" for RegisteredPlans and will not constitute foreign property in a RegisteredPlan. This will primarily be achieved by the RSP Clone Fundsentering into derivative contracts with one or more Banksor their affiliates (individually a "Counterparty"and collectively the "Counterparties") that linkthe returns to those of the Underlying Funds. However, eachRSP Clone Fund also intends to invest a portion of its assetsin securities of an Underlying Fund. This investment by anRSP Clone Fund will at all times be below the maximum foreignproperty limit prescribed under the Tax Act for RegisteredPlans.
20. Each RSP Clone Fund has obtained, or willobtain, exemptive relief from the Jurisdictions in connectionwith its activities as an RSP Clone Fund.
21. Each RSP Clone Fund has entered into anISDA Master Agreement (a "Master Agreement") withthe Counterparties for the purposes of entering into a seriesof forward contracts (each a "Forward Contract")typically one month in duration.
22. In order to hedge its obligations underthe Forward Contracts, a Counterparty or its affiliate willlikely, but is not required to, purchase units of the applicableUnderlying Funds, directly or indirectly. Given this, theinvestment by the Counterparty in the Underlying Fund is apassive investment.
23. Bank of Montreal through its subsidiaryBMO Nesbitt Burns Inc., a Counterparty, is deemed to beneficiallyown in excess of 20% of the shares outstanding in AIM GlobalTelecommunications Class and in excess of 20% of AIM GlobalTheme Class arising from hedging its position under RSP CloneFund arrangements.
24. In the absence of this Decision, if aCounterparty owned more than 20% of the voting securitiesof an Underlying Fund for hedging purposes, thus becominga substantial securityholder, the Underlying Fund would beprohibited by the Substantial Securityholder Restriction frominvesting in securities of the Counterparty.
25. Therefore, Bank of Montreal would be deemeda substantial securityholder of AIM Global TelecommunicationsClass and AIM Global Theme Class which would prohibit thosefunds from owning securities of Bank of Montreal.
26. In the future, Bank of Montreal or otherBanks and their affiliates which AIM currently does businesswith or may do business with as a Counterparty may hold morethan 20% of the voting securities in a Fund for hedging purposesunder a RSP Clone Fund Arrangement. At such time, a Fund maywant to purchase or continue to hold securities of such Bankor its affiliates where it is in the best interests of theFund but will be prohibited from doing so by the SubstantialSecurityholder Restriction in the absence of this Decision.
27. On behalf of certain funds, AIM has inthe past bought for the portfolio of one or more of the Fundsdebt securities of companies in which Bank of Montreal ownsmore than 10% of the voting securities of the companies. Bankof Montreal would be considered to have a significant interestin those companies.
28. In the absence of this Decision, certainAIM funds may be prohibited by the Significant Interest Restrictionfrom investing in the companies in which a Bank owns morethan 10% of the voting securities in circumstances where aBank, as a Counterparty, is a substantial securityholder inan AIM fund.
29. Except for the relief granted hereby,the investments by the Funds in securities of the AffectedIssuers will comply in all respects with the investment restrictionsin the Legislation and National Instrument 81-102.
30. AIM believes that it would be in the bestinterests of investors of the Funds to be permitted to investin securities of the Affected Issuers, in keeping with theinvestment objectives of the Funds, though only up to theconcentration limits otherwise allowed by applicable Legislation.
31. AIM believes that the investment by theFunds in the Affected Issuers will represent the businessjudgment of responsible persons uninfluenced by considerationsother than the best interests of the Funds.
Independent Review Committee to Oversee Holdings,Purchases or Sales of Securities of Affected Issuers
32. AIM will create an independent reviewcommittee (the "Independent Committee"), comprisedentirely of individuals who are wholly independent of AIMto oversee the holdings, purchases or sales of securitiesof Affected Issuers for the Funds.
33. The Independent Committee will take intoconsideration the best interests of unitholders of the Fundsand no other factors.
34. The Independent Committee shall reviewthe holdings, purchases or sales of securities of the AffectedIssuer to ensure that they have been made free from any influenceby the Affected Issuer and without taking into account anyconsideration relevant to an Affected Issuer.
35. Compensation to be paid to members ofthe Independent Committee will be paid by the Funds and thisexpense will be apportioned as between the Funds based onthe relative size of holdings of the Affected Issuers in eachFund.
36. Within thirty days of the end of eachmonth in which AIM purchases or sells securities of an AffectedIssuer on behalf of one or more Funds, AIM shall file thereport on SEDAR contemplated by paragraph (n) below disclosingthe name of each Fund that purchased or sold securities ofan Affected Issuer during the month, the number or amountof Affected Issuer securities purchased or sold by each Fundand the volume weighted average price paid or received forthe Affected Issuer securities by each Fund.
AND WHEREAS pursuant to the System thisMRRS Decision Document evidences the decision of each DecisionMaker (collectively, the "Decision");
AND WHEREAS each of the Decision Makersare satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers pursuantto the Legislation is that:
1. a Fund is exempt from the Substantial SecurityholderRestriction so as to enable the Fund to invest in, or continueto hold an investment in, securities of the Bank or any ofits affiliates where the Fund is involved with a Bank or anyof its affiliates as a Counterparty in which the Counterpartyhas acquired securities of the Fund to hedge its exposureunder a Forward Contract;
2. a Fund is exempt from the Significant InterestRestriction so as to enable the Fund to invest in, or continueto hold an investment in, securities of an issuer in whichthe Bank is deemed to have a significant interest, where theFund is involved with a Bank or any of its affiliates as aCounterparty in which the Counterparty has acquired securitiesof the Fund to hedge its exposure under a Forward Contract;
3. a Fund is exempt from the Substantial SecurityholderRestriction so as to enable the Fund to invest in, or continueto hold an investment in, securities of the Insurance Companyor any of its affiliates where the Fund is involved in anInsurance Product Arrangement with an Insurance Company;
4. a Fund is exempt from the Significant InterestRestriction so as to enable the Fund to invest in, or continueto hold an investment in, securities of an issuer in whichthe Insurance Company is deemed to have a significant interest,where the Fund is involved in an Insurance Product Arrangementwith the Insurance Company; and
5. this Decision, as it related to the jurisdictionof a Decision Maker, will terminate one year after the publicationin final form of any legislation or rule of that DecisionMaker dealing with mutual fund governance in a manner thatconflicts with or makes inapplicable any provision of thisDecision;
(a) AIM has appointed an Independent Committeeto review the Funds' purchases, sales and continued holdingsof securities of an Affected Issuer;
(b) the Independent Committee has at leastthree members, none of whom is an employee, director, officeror associate of (i) AIM ; (ii) any portfolio manager of theFunds; (iii) any associate or affiliate of AIM or a portfoliomanager of the Funds; or (iv) an Insurance Company involvedin an Insurance Product Arrangement or a Bank that is a Counterpartyor their respective affiliates;
(c) the Independent Committee has a writtenmandate describing its duties and standard of care which,at a minimum, sets out the conditions of this Decision;
(d) the members of the Independent Committeeexercise their powers and discharge their duties honestly,in good faith and in the best interests of investors in theFunds and, in doing so, exercise the degree of care, diligenceand skill that a reasonably prudent person would exercisein the circumstances;
(e) none of the Funds relieves the membersof the Independent Committee from liability for loss thatarises out of a failure to satisfy the standard of care setout in paragraph (d);
(f) none of the Funds indemnifies the membersof the Independent Committee against legal fees, judgmentsand amounts paid in settlement as a result of a breach ofthe standard of care set out in paragraph (d);
(g) none of the Funds incurs the cost of anyportion of liability insurance that insures a member of theIndependent Committee for a liability for loss that arisesout of a failure to satisfy the standard of care set out inparagraph (d);
(h) the cost of any indemnification or insurancecoverage paid for by AIM or any portfolio manager of the Funds,or any associate or affiliate of AIM or a portfolio managerof the Fund to indemnify or insure the members of the IndependentCommittee in respect of a loss that arises out of a failureto satisfy the standard of care set out in paragraph (d) isnot paid either directly or indirectly by the Fund;
(i) the Independent Committee reviews theFund's purchases, sales and continued holdings of securitiesof an Affected Issuer on a regular basis, but not less frequentlythan every three months;
(j) the Independent Committee forms the opinionat any time, after reasonable inquiry, that the decisionsmade on behalf of each Fund by AIM or the Fund's portfoliomanager to purchase, sell or continue to hold securities ofan Affected Issuer were and continue to be in the best interestsof the Fund, and to:
(i) represent the business judgement ofAIM or the Fund's portfolio manager, uninfluenced by considerationsother than the best interests of the Fund;
(ii) have been made free from any improperinfluence by an Affected Issuer and without taking intoaccount any consideration relevant to an Affected Issuer; and
(iii) do not exceed the limitations of theapplicable legislation;
(k) the determination made by the IndependentCommittee pursuant to paragraph (j) is included in detailedwritten minutes provided to AIM not less frequently than everythree months;
(l) the reports required to be filed pursuantto the Legislation with respect to every purchase and saleof securities of an Affected Issuer are filed on SEDAR inrespect of the relevant Fund;
(m) the Independent Committee advises theDecision Makers in writing of:
(i) any determination by it that the conditionset out in paragraph (j) has not been satisfied with respectto any purchase, sale or holding of securities of an AffectedIssuer;
(ii) any determination by it that any othercondition of this Decision has not been satisfied;
(iii) any action it has taken or proposesto take following the determinations referred to above;and
(iv) any action taken, or proposed to betaken, by AIM or a portfolio manager of the Funds in responseto the determinations referred to above;
(n) the existence, purpose, duties and obligationsof the Independent Committee, the names of its members, whetherand how they are compensated by the Funds, and the fact thatthey meet the requirements of the condition set out in paragraph(b) are disclosed:
(i) in a press release issued, and a materialchange report filed, prior to reliance on the Decision;
(ii) in item 12 of Part A of the simplifiedprospectus of the Funds; and
(iii) on AIM's internet website;
September 5, 2003.
"Harold P. Hands"
"H. Lorne Morphy"