Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from paragraphs 2.3(f) and 2.3(h) of National Instrument 81-102 Mutual Funds to permit mutual funds to invest in silver, subject to certain conditions, including a 10% limit on aggregate direct and indirect exposure to gold and silver.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, paragraphs 2.3(f) and (h), and section 19.1.
January 26, 2012
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK, NOVA SCOTIA, PRINCE EDWARD ISLAND, NEWFOUNDLAND AND LABRADOR, THE NORTHWEST TERRITORIES, NUNAVUT AND THE YUKON (the "Jurisdictions")
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF GOODMAN & COMPANY, INVESTMENT COUNSEL LTD. (the "Filer") DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the existing and future mutual funds managed by the Filer that (i) are subject to National Instrument 81-102 Mutual Funds (“NI 81-102”) (other than money market funds as defined in NI 81-102 and the funds that obtained the Prior Relief (as defined below)) and (ii) have investment strategies that permit investments in Silver (as defined below) (the “Existing Funds” and the “Future Funds”, respectively, together the “Funds” and each a “Fund”) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Funds from the restrictions contained in sections 2.3(f) and 2.3(h) of NI 81-102 (the "Exemption Sought") to permit each Fund to invest up to 10% of its net assets, taken at the market value thereof at the time of investment, in silver, Permitted Silver Certificates (as defined below) and specified derivatives the underlying interest of which is silver on an unlevered basis (collectively, “Silver”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the “OSC”) is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in each of the other provinces and territories of Canada.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
“Prior Relief” means the relief granted in the June 12, 2008 decision In the Matter of Goodman & Company, Investment Counsel Ltd., whereby fourteen mutual funds managed by the Filer obtained relief to invest up to 5% of the net assets of each fund, taken at the market value thereof at the time of investment, in each of silver and platinum.
Representations
The Filer is a corporation existing under the laws of the Province of Ontario, having its head office in Toronto, Ontario.
Each of the Funds is or will be an open-ended mutual fund trust or corporation established under the laws of the Province of Ontario. The securities of each of the Funds are or will be qualified for distribution in the Jurisdictions pursuant to simplified prospectuses and annual information forms prepared and filed in accordance with the Legislation.
For each Fund, the Filer is or will be the trustee (where applicable), principal distributor, registrar and manager.
Neither the Filer nor any of the Existing Funds is in default of securities legislation in any province or territory of Canada.
Each Fund that relies on the Exemption Sought will be permitted in accordance with its investment objectives and investment strategies to invest in Silver.
The Filer intends to invest in gold and silver as a defensive strategy in adverse market, economic, political or other circumstances. The Filer considers precious metals to be a viable alternative to holding cash or cash equivalents in such markets. The Filer has advised that permitting the investments in silver, along with gold, will permit the portfolio manager of each Fund additional flexibility to increase gains for the Fund in certain market conditions, which may have otherwise caused the Fund to have significant cash positions and therefore deter from its ability to achieve its investment objective of providing long-term capital appreciation and value.
The markets for gold and silver are highly liquid, and there are no liquidity concerns that should lead to a conclusion that investments in gold and silver need to be prohibited.
The Filer believes that the potential volatility or speculative nature of silver (or the equivalent in certificates or specific derivatives of which the underlying interest is silver) is no greater than that of gold or of equity or debt securities of issuers in which the Funds' invest and, in the portfolio context of the Funds, can provide additional diversification to the Funds.
In this decision, silver certificates (“Permitted Silver Certificates”) that the Funds invest in will be certificates that represent silver that is:
(i) available for delivery in Canada, free of charge, to or to the order of the holder of the certificate;
(ii) of a minimum fineness of 999 parts per 1,000;
(iii) held in Canada;
(iv) in the form of either bars or wafers; and
(v) if not purchased from a bank listed in Schedule I, II or III of the Bank Act (Canada), fully insured against loss and bankruptcy by an insurance company licensed under the laws of Canada or a province or territory of Canada.
An investment by a Fund in Silver represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund.
Any investment by a Fund in Silver will be held under the custodianship of one custodian that satisfies the requirements of Part 6 of NI 81-102.
If the investment in gold and/or silver (including gold, permitted gold certificates, silver, Permitted Silver Certificates and specified derivatives the underlying interest of which is gold or silver) represents a material change for any Existing Fund, the Filer will comply with the material change obligations for that Fund.
The simplified prospectus for each of the Funds discloses (i) in the Investment Strategy section the fact that the Fund has obtained relief to invest in Silver, and (ii) the risk associated with the Fund’s investment in Silver.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make a decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) the investment by a Fund in Silver is in accordance with the fundamental investment objectives of the Fund;
(b) a Fund does not purchase gold, permitted gold certificates, silver, Permitted Silver Certificates, or enter into specified derivatives the underlying interest of which is gold or silver if, immediately after the transaction, more than 10% of the net assets of the Fund, taken at market value at the time of the transaction, would consist of gold, permitted gold certificates, silver, Permitted Silver Certificates and underlying market exposure of specified derivatives linked to gold or silver.
“Darren McKall”
Darren McKall
Manager, Investment Funds Branch
Ontario Securities Commission
SEDAR NOS. 1782149, 1782151,
1782152, 1782153
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from paragraphs 2.3(f) and 2.3(h) of National Instrument 81-102 Mutual Funds to permit mutual funds to invest in silver, subject to certain conditions, including a 10% limit on aggregate direct and indirect exposure to gold and silver.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, paragraphs 2.3(f) and (h), and section 19.1.