BCSC

Exemption Orders (Discretionary)

STRATEGICNOVA FUNDS MANAGEMENT INC.

2001 BCSECCOM 966

Headnote

Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from certain of the self dealing requirements regarding investments by mutual funds in securities of underlying funds, subject to certain conditions.

Applicable British Columbia Provisions

Securities Act, R.S.B.C. 1996, c. 418, ss. 120(1), 120(2), 121(2)(b), 126(a), 126(d), and 130(b).

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO, BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, NOVA SCOTIA AND NEWFOUNDLAND

AND

IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF STRATEGICNOVA FUNDS MANAGEMENT INC.
STRATEGICNOVA CANADIAN TECHNOLOGY FUND
STRATEGICNOVA WORLDTECH FUND

MRRS DECISION DOCUMENT

WHEREAS the Canadian securities regulatory authority or regulator (collectively, the “Decision Makers”) in each of the Provinces of Ontario, British Columbia, Alberta, Saskatchewan, Nova Scotia and Newfoundland (collectively, the “Jurisdictions”) has received an application from StrategicNova Funds Management Inc. (“StrategicNova” or the “Applicant”) for itself and on behalf of StrategicNova Canadian Technology Fund and StrategicNova WorldTech Fund, (each a “Top Fund” and, collectively, the “Top Funds”) for a decision pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following requirements and restrictions in the Legislation (the “Requirements”) shall not apply to the purchase and sale by a Top Fund of units of StrategicNova USTech Fund, StrategicNova AsiaTech Fund, StrategicNova EuroTech Fund or other StrategicNova Funds, now existing or hereafter forming part of such family of mutual funds, (individually, a “Bottom Fund” and, collectively, the “Bottom Funds”):

1. the Requirement that a mutual fund shall not knowingly make 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 security holder;

2. the Requirement that a mutual fund, its management company and its distribution company shall not knowingly hold 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 security holder; and

3. the Requirement that a management company file a report relating to a purchase and sale of securities between the mutual fund and any related person or company and 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 the Applicant has represented to the Decision Makers that:

1. The Applicant is a corporation established under the laws of the Province of Ontario and is the manager and trustee of the family of mutual funds trusts and mutual fund corporations together known as the “StrategicNova Funds”. The head office of the Applicant is in Toronto, Ontario.

2. The Top Funds and the Bottom Funds are or will be open-end mutual fund trusts or corporations, belonging to the family of the StrategicNova Funds, established under the laws of the Province of Ontario. Each of them is a reporting issuer in all provinces and territories of Canada. Units of the Top Funds and the Bottom Funds are qualified under a simplified prospectus and annual information form that have been filed with and accepted by the Decision Makers.

3. Each of the Top Funds and Bottom Funds is not and will not be in default of any requirements of the Legislation.

4. There is presently no separate distribution company and the Applicant, as manager of the StrategicNova Funds, is responsible for arranging for the distribution of units of such mutual funds.

5. To achieve its investment objective, each Top Fund will invest fixed percentages (the “Fixed Percentages”) of its net assets (excluding cash and cash equivalents) in the securities of specified Bottom Funds, subject to a permitted deviation, due to market fluctuations, of not more than 2.5% above or below the Fixed Percentages (the “Permitted Ranges”).

6. To achieve its investment objective, the StrategicNova Canadian Technology Fund will invest in the Bottom Funds an aggregate amount which is 2.5% below the amount prescribed from time to time as the maximum permitted amount capable of being made as a foreign property investment under the Income Tax Act (Canada) (the “ITA”) for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and similar plans, such amount not to exceed 30% of its net assets, subject to a variation to account for market fluctuations as described in representation 5. To achieve its investment objective, the StrategicNova WorldTech Fund will invest in the Bottom Funds an aggregate amount not to exceed 90% of its net assets, subject to a variation to account for market fluctuations as described in representation 5. The aggregate amount invested by each Top Fund in Bottom Funds is herein referred to as the “Permitted Aggregate Investment”.

7. The simplified prospectus of the Top Funds will disclose the investment objectives, investment strategies, risks and restrictions of the Top Funds and the Bottom Funds, the Fixed Percentages, the Permitted Ranges and the Permitted Aggregate Investment.

8. The portfolios of the Top Funds will be reviewed on an ongoing basis and StrategicNova, in consultation with the portfolio manager, may change the Fixed Percentages of a Bottom Fund, remove a Bottom Fund or add a new Bottom Fund that is a StrategicNova Fund, whether now existing or hereafter forming part of such family of mutual funds.

9. It is presently anticipated that Brownstone Securities Inc., an affiliate of the Applicant and a registered securities dealer in Ontario, will act as dealer for the purchase by a Top Fund of units of a Bottom Fund. The arrangements will be such that the Top Fund is not charged any initial sales charge in connection with its purchase of units of a Bottom Fund, and the purchase of such units will be on a basis that does not give rise to any deferred sales charges payable by a Top Fund.

10. 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 Funds in the Bottom Funds have been structured to comply with the investment restrictions of the Legislation and NI 81-102.

11. In the absence of this Decision, pursuant to the Legislation, the Top Funds are 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 security holder. As a result, in the absence of this Decision the Top Funds would be required to divest themselves of any such investments.

12. In the absence of this Decision, Legislation requires StrategicNova to file a report on every purchase or sale of securities of the Bottom Funds by the Top Funds.

13. The investment by the Top Funds in securities of the Bottom Funds will represent the business judgment of “responsible persons” (as defined in the Legislation) uninfluenced by considerations other than the best interests 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 is satisfied that the test contained in the Legislation that provides the Decision Makers 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 a Top Fund from making or holding an investment in securities of the Bottom Funds or require StrategicNova 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 which deals with the matters in section 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 Bottom Funds, the following conditions are satisfied:

(a) the securities of both the Top Fund and the Bottom Funds are being offered for sale in the jurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information form which has been filed with and accepted by the Decision Maker;

(b) the investment by the Top Fund in the Bottom Funds 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 Bottom Funds, the names of the Bottom Funds, the Fixed Percentages, the Permitted Ranges within which such Fixed Percentages may vary, and the Permitted Aggregate Investment;

(d) the investment objective of the StrategicNova WorldTech Fund discloses that this fund invests in securities of other mutual funds;

(e) the Bottom Funds are not mutual funds whose investment objective includes investing directly or indirectly in other mutual funds;

(f) the Top Fund invests its assets (exclusive of cash and cash equivalents) in the Bottom Funds in accordance with the Fixed Percentages and the Permitted Aggregate Investment disclosed in the simplified prospectus;

(g) the Top Fund’s holding of securities of the Bottom Funds does not deviate from the Permitted Ranges;

(h) any deviation from the Fixed Percentages is caused by market fluctuations only;

(i) subject to condition (j), if an investment by the Top Fund in any of the Bottom 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 Percentages on the next day on which the net asset value was calculated following the deviation;

(j) if, due to the foreign property investment limitations under the ITA, the Top Fund was precluded from purchasing additional securities of the Bottom Funds in order to comply with condition (i), the Top Fund complied with condition (i) as soon as it was possible to do so in compliance with the foreign property investment limitations under the ITA;

(k) if the Fixed Percentages and the Bottom Funds which are disclosed in the simplified prospectus have been changed, either the simplified prospectus has been amended or a new simplified prospectus has been filed to reflect the change and the securityholders of the Top Fund have been given at least 60 days’ prior written notice of the change;

(l) there are compatible dates for the calculation of the net asset value of the Top Fund and the Bottom Funds for the purpose of the issue and redemption of the securities of such mutual funds;

(m) no sales charges are payable by the Top Fund in relation to its purchase of securities of the Bottom Funds;

(n) no redemption fees or other charges are charged by a Bottom Fund in respect of the redemption by the Top Fund of securities of the Bottom Fund owned by the Top Fund;

(o) no fees or charges of any sort are paid by the Top Fund and the Bottom 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 Top Fund’s purchase, holding or redemption of the securities of the Bottom Funds;

(p) the arrangements between or in respect of the Top Fund and the Bottom Funds are such as to avoid the duplication of management fees;

(q) any notice provided to securityholders of a Bottom Fund as required by applicable laws or the constating documents of that Bottom Fund has been delivered by the Top Fund to its securityholders;

(r) all of the disclosure and notice material prepared in connection with a meeting of securitytholders of the Bottom Funds and received by the 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 Bottom Fund in accordance with their direction, and the representative of the Top Fund has not voted its holdings in the Bottom Funds except to the extent the securityholders of the Top Fund have directed;

(s) in addition to receiving the annual and, upon request, the semi-annual financial statements of the Top Fund, securityholders of the Top Fund have received appropriate summary disclosure in respect of the Top Fund’s holdings of securities of the Bottom Funds in the financial statements of the Top Fund; and

(t) to the extent that the Top Fund and the Bottom Funds do not use a combined simplified prospectus and annual information form containing disclosure about the Top Fund and the Bottom Funds, copies of the simplified prospectus and annual information form of the Bottom Funds have been provided upon request to securityholders of the Top Fund and the right to receive these documents is disclosed in the prospectus of the Top Fund.

DATED on May 1, 2001.

Paul Moore R. Stephen Paddon