Exemption Orders (Discretionary)

SYNERGY ASSET MANAGEMENT INC.


2001 BCSECCOM 44


Headnote

Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from certain of the self dealing requirements regarding investments for specified purposes by mutual funds in securities of other mutual funds that are under common management.

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), 127(1)(a) 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 SYNERGY ASSET MANAGEMENT INC.

AND

SYNERGY CANADIAN GROWTH CLASS OF SYNERGY CANADIAN FUND INC. SYNERGY GLOBAL GROWTH CLASS OF SYNERGY GLOBAL FUND INC.

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, Nova Scotia, and Newfoundland (the “Jurisdictions”) has received an application from Synergy Asset Management Inc. (“Synergy” or the “Manager”), on its own behalf and on behalf of Synergy Canadian Growth Class (the “Top Fund”) of Synergy Canadian Fund Inc. to invest in Synergy Global Growth Class (the “Underlying Fund”) of Synergy Global Fund Inc., for a decision (the “Decision”) pursuant to the securities legislation of the Jurisdictions (the “Legislation”) that the following requirements or prohibitions under the Legislation (the “Applicable Legislation”) shall not apply in connection with investments by the Top Fund in the Underlying Fund:

(a) the prohibition against a mutual fund 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 provisions requiring the management company of a mutual fund to file a report relating to the purchase or sale of securities between a 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

(c) the prohibition against a portfolio manager, and in the case of British Columbia's legislation the mutual fund, knowingly causing an investment portfolio managed by it to invest in any issuer in which a responsible person is an officer or director unless the specific fact is disclosed to the client and the written consent of the client to the investment 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 Synergy has made the following representations to the Decision Makers:

1. The Top Fund is a class of mutual fund shares of Synergy Canadian Fund Inc. (“Canadian Fund”), a corporation established under the laws of the Province of Ontario.

2. The Underlying Fund is a class of mutual fund shares of Synergy Global Fund Inc. (“Global Fund”), a corporation established under the laws of the Province of Ontario.

3. Synergy is a corporation established under the laws of the Province of Ontario and is the manager and promoter of the Canadian Fund and the Global Fund, and is also the manager, trustee and promoter of other mutual funds known as the Synergy family of Mutual Funds.

4. The classes of shares of the Canadian Fund and Global Fund are currently qualified for distribution pursuant to simplified prospectuses and annual information forms dated September 28, 1999 and May 24, 2000, respectively, and are, together with certain additional funds, expected to be qualified for distribution pursuant to a multiple simplified prospectus and multiple annual information form to be dated September 2000.

5. The Canadian Fund and the Global Fund are reporting issuers in the Jurisdictions and are not in default of any requirements of the Legislation or the rules or regulations made thereunder.

6. The investment objective of the Top Fund is to obtain long-term capital growth by investing primarily in equity and equity-related securities of Canadian issuers. Although the Top Fund currently invests a portion of its assets directly in foreign securities (the “Foreign Securities”), it seeks to achieve its investment in foreign securities by investing a substantial portion of the foreign property content of its portfolio in securities of the Underlying Fund.

7. The investment objective of the Underlying Fund is to obtain long-term capital growth by investing in equity and equity-related securities of foreign issuers situated primarily in the developed markets represented on the MSCI World Index and companies operating in emerging markets.

8. The Top Fund will invest an amount in the securities of the Underlying Fund such that its securities will be “qualified investments” for registered retirement savings plans, registered retirement income funds, and deferred profit sharing plans (“Registered Plans”) under the Income Tax Act (Canada) (the “Tax Act”), and will not constitute foreign property in a Registered Plan.

9. The Top Fund will achieve its investment in foreign securities by investing in shares of the Underlying Fund in an amount (the “Permitted Amount”) which is 7.5% less than the maximum permitted amount, presently set at 25% of the cost amount of its assets and to be increased to 30% after 2000, capable of being made as a foreign property investment for Registered Plans (the “Foreign Property Limit”), but not to exceed 30%. This investment shall be subject to a variation of 2.5% above or below the Permitted Amount. Additional exposure to foreign securities will be achieved through direct investments, but such combined investments will not however at any time exceed the Foreign Property Limit. The remaining net assets of the Top Fund will be actively managed and will be invested in the discretion of the Manager in accordance with its stated investment objectives.

10. Amendment No. 1 dated June 13, 2000 to the simplified prospectus and annual information form dated September 28, 1999 (the “Amendment”) for the Synergy Mutual Funds, including the Top Fund, was receipted on June 20, 2000 by the Decision Makers in each province and territory in Canada. The Amendment set forth, among other things, the proposed changes to the investment strategy of the Top Fund and provided a description of the investments to be made by the Top Fund in shares of the Underlying Fund up to the Permitted Amount.

11. Except to the extent evidenced by this Decision and specified approvals granted by the Canadian Securities Administrators pursuant to National Instrument 81-102 Mutual Funds (“NI 81-102"), the investment by the Top Fund in the Underlying Fund will be structured to comply with the investment restrictions of the Legislation and NI 81-102.

12. To aid in the implementation of the proposed investment strategy of investing in securities of the Underlying Fund, the Top Fund wishes to dispose of a portion of its existing portfolio of Foreign Securities and to acquire securities of the Underlying Fund. The most cost effective and efficient way for the Top Fund to do so, is to have the Top Fund sell such portion of its existing Foreign Securities to the Underlying Fund and to use the net proceeds therefrom to acquire securities of the Underlying Fund (the “Inter-Fund Trade”).

13. The Foreign Securities are appropriate investments for the Underlying Fund.

14. There will be no substantial or adverse tax consequences on securityholders of the Top Fund or the Underlying Fund arising from either the proposed change in investment strategy or the Inter-Fund Trade.

15. the Inter-Fund Trade will be effected at the “current market price” of each foreign security, that is,

(a) if the principal market for the security is a stock exchange or an over-the counter market, the last independent sale price on such exchange or market, or, if there is not a previously reported transaction on such exchange or market on that day, the average of the current independent bid and current independent offer on such exchange or market; or

(b) if there is not such a principal market, then the average of the highest current independent bid and lowest current independent offer as determined on the basis of reasonable inquiry, which inquiry will include obtaining at least one independent arm’s length quote of the bid and offer price;

(c) for purposes of establishing the current market price, “principal” means the stock exchange or over-the-counter market on which the highest volume of the securities have traded in the 30 trading days immediately preceding the date of the Inter-Fund Trade, and “independent” means a sale where neither the Manager, nor any other Synergy mutual fund is a party;

16. the Inter-Fund Trade has been approved by the directors of the Manager as being in the best interests of the Top Fund and the Underlying Fund;

17. Appropriate records will be maintained by Synergy of the Inter-Fund Trade which will include the date of the transaction, the name of the issuer of the securities, the class or designation of the securities, the amount or number of the securities, the amount and means of determining the purchase price and the next statement of portfolio transactions for the Top Fund and the Underlying Fund will include a note providing details of the securities so delivered.

18. In the absence of this Decision, pursuant to the Applicable Legislation, as soon as the aggregate holdings by the Top Fund of securities of the Underlying Fund exceed 10% of the outstanding securities of the Underlying Fund, Synergy, and possibly the Top Fund, would be required to comply with the reporting and other requirements of the Applicable Legislation.

19. In the absence of this Decision, pursuant to the Applicable Legislation, (a) the Top Fund is prohibited from knowingly making an investment and knowingly holding an investment in shares of the Underlying Fund to the extent that the Top Fund, either alone or in combination with other related mutual funds, is a substantial security holder of the Underlying Fund; and (b) Synergy would be required to file reports respecting every purchase or sale of shares of the Underlying Fund by the Top Fund.

20. Because the directors and officers of Synergy are “responsible persons” pursuant to the Applicable Legislation, in respect of the Top Fund and the Underlying Fund, in the absence of this Decision, Synergy would be prohibited from causing the Top Fund to invest in the Underlying Fund unless the specific fact is disclosed to investors and the written consent of the investors is obtained before the purchase.

21. Due to the corporate structure of the Top Fund, the Underlying Fund and Synergy, the Legislation does not technically prohibit the Inter-Fund Trade, however, the Inter-Fund Trade will be carried out as described above.

22. The investments of the Top Fund in the Underlying Fund represents the business judgement of “responsible persons” (as defined in the Legislation), uninfluenced by considerations other than the best interest of the Top Fund.

AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the Decision of each Decision Maker;

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 Applicable Legislation shall not apply to prevent the Top Fund from investing in or redeeming the securities of the Underlying Fund;

PROVIDED THAT:

1. the Decision, as it relates to the jurisdiction of a Decision Maker, shall terminate one year after the publication in final form of any legislation or rule of that Decision Maker dealing with the matters in section 2.5 of NI 81-102; and

2. the Decision shall only apply in respect of investments in, or transactions with, shares of the Underlying Fund that are made by the Top Fund in compliance with the following conditions:

(a) the Top Fund and the Underlying Fund are under common management;

(b) shares of the Top Fund are offered for sale in the Jurisdiction of the Decision Makers pursuant to a simplified prospectus and annual information form (the “Prospectus”) which has been filed with and accepted by the Decision Makers;

(c) shares of the Underlying Fund are offered for sale in the jurisdiction of the Decision Makers pursuant to a simplified prospectus and annual information form which has been filed with and accepted by the Decision Makers;

(d) the Prospectus of the Top Fund will describe the intent of the Top Fund to invest in the Underlying Fund and discloses the facts set out in subclauses (f) and (g) below, the voting rights of the Top Fund’s shareholders in respect of the Top Fund’s holding in the Underlying Fund as set out in subclauses (q) and (r) below, and the availability (upon request) to the Top Fund’s shareholders of the disclosure documents and financial statements of the Underlying Fund as set out in subclause (t) below;

(e) the investment by the Top Fund in shares of the Underlying Fund is compatible with the fundamental investment objectives of the Top Fund;

(f) the Top Fund’s investments in the Underlying Fund may deviate by no more than 2.5% (the “Permitted Percentage Deviation”) above or below the Permitted Amount, but only as a result of market fluctuations and without any action being taken by Synergy to increase or decrease the Top Fund’s investment within the Permitted Percentage Deviation and the Top Fund’s additional exposure to foreign securities will be achieved through direct investments in Foreign Securities, but such combined investments will not at any time exceed the Foreign Property Limit (the “Permitted Investments”);

(g) if at any time, the investments of the Top Fund in the shares of the Underlying Fund exceeds (or declines below) the Permitted Percentage Deviation, Synergy will make the necessary changes in the Top Fund’s investment portfolio at its next valuation date in order to bring its investment in the Underlying Fund up or down to the Permitted Amount;

(h) the Permitted Investments by the Top Fund in the Underlying Fund, as disclosed in the Prospectus, will not be changed unless the Top Fund's Prospectus is amended to reflect the proposed change or a new prospectus is filed to reflect such change and the securityholders of the Top Fund have either been given at least 60 days prior written notice of the proposed change in the Permitted Investments or the proper approval of the shareholders has been given to the change in the Permitted Investments at a meeting of shareholders of the Top Fund called for that purpose;

(i) except as permitted by this Decision, the Top Fund will not invest in any other mutual fund;

(j) the Underlying Fund will not invest in another mutual fund;

(k) 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 their respective shares;

(l) no redemption fees or other charges are charged by anyone in respect of any redemption by the Top Fund of shares of the Underlying Fund owned by the Top Fund;

(m) no sales charges will be paid by the Top Fund in respect of the purchase of shares of the Underlying Fund;

(n) no “trailer fees” or other fees or charges are paid in respect of the investment by the Top Fund in shares of the Underlying Fund;

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

(p) no fees and charges of any sort are paid by the Top Fund, the Underlying Fund, Synergy or the principal distributor of the Top Fund or the Underlying Fund, 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 shares of the Underlying Fund;

(q) in the event of the provision of any notice to shareholders of the Underlying Fund, as required by the constating documents of the Underlying Fund or by the laws applicable to the Underlying Fund, such notice will also be delivered to the shareholders of the Top Fund; all voting rights attached to the shares of the Underlying Fund which are owned by the Top Fund will be passed through to the shareholders of the Top Fund;

(r) in the event that a shareholders' meeting is called for the Underlying Fund, all of the disclosure and notice material prepared in connection with such meeting will be provided to the shareholders of the Top Fund; such shareholders will be entitled to direct a representative of the Top Fund to vote the Top Fund’s holdings in the Underlying Fund in accordance with their direction; and the representative of the Top Fund will not be permitted to vote the Top Fund’s holdings in the Underlying Fund except to the extent the shareholders of the Top Fund so direct;

(s) in addition to receiving the annual and, upon request, the semi-annual financial statements of the Top Fund, shareholders of the Top Fund will receive either (i) appropriate disclosure in the financial statements of the Top Fund concerning the Top Fund’s investment in the Underlying Fund or (ii) the annual and, upon request, the semi-annual financial statements of the Underlying Fund in either a combined report, containing both the Top Fund’s and the Underlying Fund’s financial statements, or in a separate report containing the Underlying Fund’s financial statements; and

(t) to the extent that the Top Fund and the Underlying Fund do not use a combined simplified prospectus, annual information form and financial statements containing disclosure about the Top Fund and the Underlying Fund, shareholders of the Top Fund may obtain, upon request, a copy of the simplified prospectus and annual information form and the annual and semi-annual financial statements of the Underlying Fund.

DATED at Toronto, this 10th day of October, 2000.


J.A. Geller Stephen N. Adams
©2024 British Columbia Securities Commission