Exemption Orders (Discretionary)
AGF FUNDS INC.
2001 BCSECCOM 696
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from certain of the self dealing requirements to permit a merger of two mutual funds.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 120(1), 120(2), 121(2)(b), 127(1)(b) and 130(b).
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 AGF FUNDS INC., AGF EUROPEAN GROWTH CLASS AND AGF U.S. VALUE CLASS OF AGF INTERNATIONAL GROUP LIMITED
WHEREAS the Canadian securities regulatory authority or regulator (the “Decision Maker”) in each of the provinces of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (collectively, the “Jurisdictions”) has received an application from AGF Funds Inc. (“AGF”), as manager of AGF European Growth Class and AGF U.S. Value Class (the “Corporate Funds”) of AGF International Group Limited (“AGF International”) for a decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following requirements and restrictions contained in the Legislation (the “Requirements”) shall not apply in respect of certain investments to be made by the Corporate Funds in Global Strategy Europe Plus Fund and Global Strategy U.S. Equity Fund (the “Trust Funds”):
1. the Requirements prohibiting a mutual fund from knowingly making or 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 requiring a management company, or in British Columbia, a mutual fund manager, to file a report relating to the 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 AGF has represented to the Decision Makers that:
1. AGF is a corporation continued under the laws of the province of Ontario with its head office in Toronto, Ontario. AGF is the manager of the Corporate Funds and the manager and trustee of the Trust Funds.
2. AGF International is a mutual fund corporation formed on September 30, 1994 under the laws of the province of Ontario and is currently authorized to issue 24 classes of shares, each having a different investment objective. Each class is referred to as a fund and the Corporate Funds are two such classes.
3. Each of the Trust Funds is a mutual fund trust established by a declaration of trust governed by the laws of Ontario.
4. Each of the Corporate Funds and the Trust Funds are reporting issuers in all provinces and territories of Canada and are not in default of any requirements of the Legislation.
5. Mutual Fund Series shares of AGF European Growth Class are qualified for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated March 26, 2001 that have been filed with and accepted by the Decision Makers. Series F shares of AGF European Growth Class are qualified for sale in all provinces and territories of Canada under a simplified prospectus and annual information form dated April 25, 2001 that have been filed with and accepted by the Decision Makers. Series I shares are offered by private placement.
6. Mutual Fund Series shares and Series F shares of AGF U.S. Value Class are qualified for sale in all provinces and territories of Canada under separate simplified prospectuses and annual information forms, each dated June 1, 2001, which documents have been filed with and accepted by the Decision Makers. Series I shares are offered by private placement.
7. Mutual Fund Series units and Series P units of the Trust Funds are qualified for sale in all provinces and territories of Canada under separate simplified prospectuses and annual information forms, each dated March 26, 2001, which documents have been filed with and accepted by the Decision Makers. To date, Global Strategy U.S. Equity Fund has not sold any Series P units. There are also outstanding Series X units of Global Strategy Europe Plus Fund, but these are no longer offered and resulted solely from a reclassification pursuant to a reorganization of the Trust Funds in 1994.
8. AGF European Growth Class has the same investment objective as Global Strategy Europe Plus Fund and AGF U.S. Value Class has the same investment objective as Global Strategy U.S. Equity Fund.
9. AGF proposed the merger of Global Strategy Europe Plus Fund into AGF European Growth Class and of Global Strategy U.S. Equity Fund into AGF U.S. Value Class (the “Mergers”). The Mergers were approved by unitholders of the Trust Funds at unitholder meetings on May 15, 2001. The costs associated with the meetings were borne by AGF.
10. The Mergers will be implemented by giving the Trust Funds’ unitholders the opportunity on or about December 15, 2001 (the “Effective Date”) to either (i) without payment by unitholders or the Trust Funds of any sales commissions or any other fees, exchange their units in the Trust Funds for Mutual Fund Series shares of the respective Corporate Funds having an equal aggregate net asset value on either a tax rollover basis or without the benefit of such treatment; or (ii) in exchange for their units in the Trust Funds, receive a distribution of cash from the Trust Funds representing the aggregate net asset value of such units without payment by unitholders or the Trust Funds of any charges or fees. Holders of Mutual Fund Series, Series P and Series X units of the Trust Funds who choose option (i) will be offered Mutual Fund Series shares of the respective Corporate Funds.
11. Each unitholder will be given the opportunity to file a joint election with AGF International pursuant to Section 85 of the Income Tax Act (Canada), and pursuant to applicable tax legislation in the Province of Québec for a unitholder who is resident in such province, in which the unitholder and AGF International will, within certain parameters, elect a cost base at which the unitholder’s units in the Trust Funds will be transferred to and acquired by the Corporate Funds and at which the shares of the Corporate Funds will be acquired by the unitholder, thereby resulting in a complete or partial tax deferral of any taxable gain to the unitholder that would otherwise result on the exchange.
12. The Corporate Funds will be the sole unitholders of the Trust Funds following the Effective Date as all units of the Trust Funds previously held by unitholders will be held by AGF International and no further subscription for units of the Trust Funds will be permitted.
13. AGF will manage the portfolio assets of the Trust Funds and the portfolio assets of AGF International attributable to the Corporate Funds without regard to which vehicle holds such portfolio assets. All new portfolio investments will be made by AGF International in respect of the Corporate Funds. AGF International will not acquire portfolio securities from the Trust Funds and the decision to dispose of a particular portfolio asset will depend solely on its ongoing investment merits, while keeping in mind tax efficiencies. All distributions resulting from portfolio transactions made by each Trust Fund will be paid to AGF International as the sole unitholder of each Trust Fund. Distributions received by AGF International will be invested in portfolio investments attributable to the relevant Corporate Fund. Through gradual turnover, it is expected that the Trust Funds’ portfolio assets will be liquidated within 4 years from the Effective Date, following which the Trust Funds will be wound up.
14. Neither AGF nor AGF International Advisors Company Limited, the investment advisor of the Corporate Funds, will receive any management or advisory fees from the Trust Funds after the Effective Date. Their fees will be based solely on the net asset value of shares of the Corporate Funds (which will include the net asset value of the units of the Trust Funds held by AGF International).
15. The Trust Funds will continue to produce financial statements which will be delivered to shareholders of the Corporate Funds.
16. After the Effective Date, AGF International will seek direction from shareholders of the Corporate Funds as to how to vote its units in the Trust Funds with respect to any fundamental matter relating to the Trust Funds by calling a meeting of the Corporate Funds’ shareholders, other than for matters pertaining to the ultimate wind-up of the Trust Funds which have already been approved by the Trust Funds’ unitholders at the meetings held on May 15, 2001.
17. In order to obtain the regulatory approvals necessary to implement the Mergers, an application under National Instrument 81-102 has been filed with applicable securities regulatory authorities.
18. The simplified prospectus and annual information form of the Corporate Funds will be amended on or about the Effective Date to the extent necessary to reflect the Mergers.
19. In the absence of this Decision, pursuant to the Legislation, each Corporate Fund is prohibited from knowingly making or holding an investment in a person or company in which the Corporate Fund, alone or together with one or more related mutual funds, is a substantial securityholder. As a result, in the absence of this Decision, each Corporate Fund would be required to divest itself of the units of the corresponding Trust Fund acquired pursuant to the Mergers.
20. In the absence of this Decision, the Legislation requires AGF to file a report on every purchase or sale of securities of the Trust Funds by the Corporate Funds.
AND WHEREAS pursuant to the System this Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
AND WHEREAS each Decision Maker 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 pursuant to the Legislation is that the Requirements shall not apply so as to prevent the Corporate Funds from making or holding an investment in the securities of the Trust Funds or require AGF to file a report relating to the purchase or sale of such securities.
PROVIDED IN EACH CASE THAT:
The Decision shall only apply in respect of investments in, or transactions with, the Trust Funds that are made by the Corporate Funds in compliance with the following conditions:
(a) the investment by the Corporate Funds in the Trust Funds is compatible with the fundamental investment objectives of the Corporate Funds;
(b) the simplified prospectus of the Corporate Funds discloses details of the Mergers, including disclosure of the nature of the investment by the Corporate Funds in the Trust Funds and of the Corporate Funds’ holdings of securities of the Trust Funds;
(c) there are compatible dates for the calculation of the net asset value of the Corporate Funds and the Trust Funds for the purpose of the issue and redemption of securities;
(d) no sales charges are payable by the Corporate Funds in relation to their purchases of securities of the Trust Funds;
(e) no redemption fees or other charges are charged by the Trust Funds in respect of the redemption of securities of the Trust Funds owned by the Corporate Funds;
(f) no fees or charges of any sort are paid by the Corporate Funds and the Trust Funds, by their respective managers or principal distributors, or by an affiliate or associate of any of the foregoing entities, to anyone in respect of the Corporate Funds’ purchase, holding or redemption of the securities of the Trust Funds;
(g) any notice provided to securityholders of a Trust Fund, as required by applicable laws or the constating documents of the Trust Funds, has been delivered by the relevant Corporate Fund to its securityholders, along with all voting rights attached to the securities of the Trust Fund which are directly owned by the Corporate Fund;
(h) all of the disclosure and notice material prepared in connection with a meeting of securityholders of a Trust Fund and received by the relevant Corporate Fund has been provided to its securityholders, the securityholders have been permitted to direct a representative of the Corporate Fund to vote its holdings in the Trust Fund in accordance with their direction, and the representative of the Corporate Fund has not voted its holdings in the Trust Fund except to the extent the securityholders of the Corporate Fund have directed;
(i) in addition to receiving the annual and, upon request, the semi-annual financial statements of the Corporate Funds, securityholders of the Corporate Funds receive the annual, and upon request, the semi-annual financial statements, of the Trust Funds in either a combined report, containing financial statements of the Corporate Funds and the Trust Funds, or in a separate report containing the financial statements of the Trust Funds; and
(j) the Trust Funds are wound up as soon as this can be done in a tax-efficient manner, but in any case no later than 4 years from the Effective Date.
DATED this 22nd day of June, 2001.
Howard I. Wetston Stephen N. Adams