Exemption Orders (Discretionary)
SYNERGY CANADIAN FUND INC.
2001 BCSECCOM 937
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - relief granted from certain of the self dealing prohibitions and reporting requirements regarding investment by a Top Fund in securities of an Underlying Fund under common management for specified purpose, subject to certain conditions
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(b), 126(d), 127(1)(a) and 130
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
SYNERGY CANADIAN FUND INC.
SYNERGY CANADIAN VALUE CLASS
AND
SYNERGY ASSET MANAGEMENT INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia, and Newfoundland (the “Participating Jurisdictions”) has received an application from Synergy Asset Management Inc. (“Synergy”), on its own behalf and on behalf of Synergy Canadian Value Class, (the “Top Fund”), a class of shares of Synergy Canadian Fund Inc. (“Synergy Canadian”) for a decision pursuant to the securities legislation of the Participating Jurisdictions (the “Legislation”) that the following provisions of the Legislation (the “Applicable Requirements”) shall not apply to the Top Fund or Synergy, as the case may be, in respect of certain investments to be made from time to time by the Top Fund in securities of Synergy Global Value Class (the “Underlying Fund”), a class of shares of Synergy Global Fund Inc. (“Synergy Global”):
(a) the restrictions contained in the Legislation 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;
(b) the requirements contained in the Legislation requiring a 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.
(c) the restrictions contained in the Legislation prohibiting a portfolio manager, or in British Columbia, a mutual fund, from knowingly causing any investment portfolio managed by it to invest in any issuer in which a responsible person or associate of a responsible person is an officer or director unless the specific fact is disclosed to the client and, if applicable, the written consent of the client is obtained before the purchase.
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 Synergy to the Decision Makers that:
1. Synergy is a corporation incorporated under the laws of the Province of Ontario and is the manager of the Top Fund and the Underlying Fund (collectively, the “Synergy Funds”). Synergy’s head office is located in Toronto, Ontario. The Manager, Synergy Canadian and Synergy Global have common directors and officers.
2. The Top Fund is a class of shares of Synergy Canadian, a mutual fund corporation incorporated under the laws of the Province of Ontario, the mutual fund shares of which are currently offered for sale in each of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form dated November 13, 2000.
3. The Underlying Fund is a class of shares of Synergy Global, a mutual fund corporation incorporated under the laws of the Province of Ontario, the mutual fund shares of which are currently offered for sale in each of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form dated January 26, 2001.
4. Each of the Synergy Funds is a reporting issuer in each of the provinces and territories of Canada and is not in default of any requirements of the acts or rules applicable in each of the provinces and territories.
5. As part of achieving its investment objective, the Top Fund seeks to obtain foreign content exposure by investing 15% (the “Fixed Percentage”) of its assets in shares of the Underlying Fund, subject to a variation of 2.5% above or below this amount (the “Permitted Range”) due solely to market fluctuations. Additional exposure to foreign securities, up to an aggregate maximum of 30%, may be achieved through direct investments.
6. The simplified prospectus for the Top Fund will disclose the name, investment objectives, investment strategies, risks and restrictions of the Top Fund and the Underlying Fund, as well as the Fixed Percentage, and Permitted Range.
7. The Manager will cause the simplified prospectus of the Underlying Fund to disclose, in Part B of the simplified prospectus, the fact that the Top Fund will be investing in the Underlying Fund and that it is anticipated that such investment will result in the Top Fund holding approximately 70% of the outstanding shares of the Underlying Fund. As long as the Top Fund holds 20% or more of the outstanding shares of the Underlying Fund, at the time of each renewal of the simplified prospectus of the Underling Fund, the Manager will cause Part B of the simplified prospectus of the Underlying Fund to include a disclosure of such substantial ownership with or without specifying the percentage. However, if the percentage of substantial ownership is not specified in Part B of the simplified prospectus of the Underlying Fund, the disclosure will be cross-referenced to the relevant section of the annual information form of the Underlying Fund.
8. The investments by the Top Fund in securities of the Underlying Funds represent the business judgement of “responsible persons” (as defined in the Legislation) uninfluenced by considerations other than the best interests of the Top Fund.
9. Except to the extent evidenced by this Decision and specific approvals granted by the Decision Makers pursuant to National Instrument 81-102 Mutual Funds (“NI 81-102”), the investments by the Top Fund in the Underlying Fund have been structured to comply with the investment restrictions of the Legislation and NI 81-102.
10. In the absence of the Decision, pursuant to the Legislation, the Top Fund is prohibited 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. As a result, in the absence of this Decision the Top Fund would be required to divest itself of any such investments.
11. In the absence of the Decision, Legislation requires Synergy to file a report on every purchase or sale of shares of the Underlying Fund by the Top Fund.
12. In the absence of this Decision, pursuant to the Legislation, Synergy is prohibited from causing the Top Fund to invest in the Underlying Fund unless the specific fact is disclosed to securityholders of the Top Fund and the written consent of securityholders of the Top Fund is obtained before the purchase.
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 is satisfied that the tests 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 Fund from making and holding an investment in securities of the Underlying Fund or require Synergy to file a report relating to the purchase or sale of such securities and disclose such purchase or sale to securityholders of the Top Fund and obtain their written consent.
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 matters in subsection 2.5 of NI 81-102.
2. the Decision shall only apply if, at the time the Top Fund makes or holds an investment in the Underlying Fund, the following conditions are satisfied:
(a) the securities of both the Top Fund and the Underlying Fund 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 the Top Fund in the Underlying Fund is compatible with the fundamental investment objectives of the Top Fund;
(c) the simplified prospectus discloses the intent of the Top Fund to invest in securities of the Underlying Fund, the name of the Underlying Fund, the Fixed Percentage and the Permitted Range within which such Fixed Percentage may vary;
(d) the Underlying Fund is not a mutual fund whose investment objective includes investing directly or indirectly in other mutual funds;
(e) the Top Fund ‘s holding of securities in the Underlying Fund does not deviate from the Permitted Range;
(f) any deviation from the Fixed Percentage is caused by market fluctuations only;
(g) if an investment by the Top Fund in the Underlying Fund has deviated from the Permitted Range as a result of market fluctuations, the Top Fund’s investment portfolio is re-balanced to comply with the Fixed Percentage on the next day on which the net asset value is calculated following the deviation;
(h) if the Underlying Fund or the Fixed Percentage which is disclosed in the simplified prospectus is changed, either the simplified prospectus is amended in accordance with securities legislation to reflect this change, or a new simplified prospectus reflecting the change is filed within ten days thereof, and the securityholders of the Top Fund are given at least 60 days’ notice of the change;
(i) there are compatible dates for the calculation of the net asset value of the Top Fund and the Underlying Fund for the purpose of the issue and redemption of the securities of such mutual funds;
(j) no sales charges are payable by the Top Fund in relation to its purchases of securities of the Underlying Fund;
(k) no redemption fees or other charges are charged by the Underlying Fund in respect of the redemption by the Top Fund of securities of the Underlying Fund owned by the Top Fund;
(l) no fees or charges of any sort are paid by the Top Fund and the Underlying Fund, 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 Top Fund’s purchase, holding or redemption of the securities of the Underlying Fund;
(m) the arrangements between or in respect of the Top Fund and the Underlying Fund are such as to avoid the duplication of management fees;
(n) any notice provided to securityholders of the Underlying Fund as required by applicable laws or the constating documents of that Underlying Fund is delivered by the Top Fund to its securityholders;
(o) all of the disclosure and notice material prepared in connection with a meeting of securityholders of the Underlying Fund and received by the Top Fund are provided to its securityholders, the securityholders are 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 does not vote its holdings in the Underlying Fund except to the extent the securityholders of the Top Fund have directed;
(p) in addition to receiving the annual and, upon request, the semi-annual financial statements of the Top Fund, securityholders of the Top Fund are provided appropriate summary disclosure in respect of the Top Fund’s holdings of securities of the Underlying Funds in the financial statements of the Top Fund; and
(q) to the extent that the Top Fund and the Underlying Fund do not use a combined simplified prospectus and annual information form containing disclosure about the Top Fund and the Underlying Fund, copies of the simplified prospectus and annual information form of the Underlying Fund are provided upon request to securityholders of the Top Fund, and the right to receive these documents is disclosed in the simplified prospectus of the Top Fund.
DATED this 13th day of September, 2001
Paul M. Moore Jack A. Geller