Exemption Orders (Discretionary)
GUARDIAN GROUP OF FUNDS LTD.
2001 BCSECCOM 972
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – relief from self-dealing prohibitions and reporting requirements in connection with an investment by an RSP fund in forward contracts with a related counterparty.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(a), 121(2)(c), 123, 126(a), 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 GUARDIAN GROUP OF FUNDS LTD. and GGOF ALEXANDRIA RSP GLOBAL GROWTH FUND, GGOF ALEXANDRIA RSP GLOBAL TECHNOLOGY FUND and GGOF CENTURION RSP AMERICAN VALUE FUND
MRRS DECISION DOCUMENT
WHEREAS the local 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 (the “Application”) from Guardian Group of Funds Ltd. ("GGOF") in its own capacity and on behalf of GGOF Alexandria RSP Global Growth Fund, GGOF Alexandria RSP Global Technology Fund and GGOF Centurion RSP American Value Fund (the "Existing Funds") and other mutual funds managed by GGOF, or any affiliate, after the date of this Decision (defined herein) having an investment objective that is linked to the returns or portfolio of another specified mutual fund while remaining 100% eligible for registered plans (together with the Existing Funds, the “RSP Funds”) for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the following prohibitions or requirements under the Legislation (the "Applicable Requirements") shall not apply to the RSP Funds or GGOF, as the case may be, in respect of certain investments made by the RSP Funds in forward contracts with the Bank of Montreal ("BMO" or the "Related Counterparty"):
1. the provision contained in the Legislation prohibiting a mutual fund from knowingly making and holding an investment in a person or company who is a substantial securityholder of the mutual fund, its management company or distribution company;
2. the requirements contained in the Legislation requiring the management company or 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; and
3. the provision contained in the Legislation prohibiting a portfolio manager, or in British Columbia, the mutual fund, from knowingly causing any investment portfolio managed by it to invest in any issuer in which a "responsible person" (as that term is defined in the Legislation) or an associate of a responsible person is an officer or director.
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 GGOF to the Decision Makers that:
1. The RSP Funds are or will be open-end mutual funds established under the laws of the Province of Ontario. GGOF is a corporation incorporated under the laws of Canada. GGOF is or will be the manager of the RSP Funds. The head office of GGOF is in the Province of Ontario.
2. BMO is a corporation established under the laws of Canada. The registered office of BMO is located in Quebec. On July 19, 2001, BMO acquired 100% of the issued voting securities of GGOF (the “Acquisition”).
3. The RSP Funds are or will be reporting issuers. The units of the RSP Funds are or will be qualified under a simplified prospectus and annual information form (collectively, the "Prospectus") or the equivalent under the Legislation, which Prospectus will contain disclosure with respect to the investment objective, investment practices and restrictions of the RSP Funds. The RSP Funds are not in default of the requirements of the Legislation.
4. Each RSP Fund seeks to achieve its investment objective while ensuring that its units do not constitute "foreign property" under the Income Tax Act (Canada) (the "Tax Act") for registered retirement savings plans, registered retirement income plans, and deferred profit sharing plans ("Registered Plans").
5. To achieve its investment objective, each RSP Fund will invest its assets in securities of a specified underlying fund (the “Underlying Funds”) such that its units will, in the opinion of tax counsel to the RSP Fund, be "qualified investments" for Registered Plans and will not constitute foreign property in a Registered Plan. This will primarily be achieved by the RSP Funds entering into derivative contracts with one or more financial institutions, including the Related Counterparty, that link the returns to those of the Underlying Funds. However, each RSP Fund also intends to invest a portion of its assets in securities of an Underlying Fund. This investment by an RSP Fund will at all times be below the maximum foreign property limit prescribed under the Tax Act for Registered Plans.
6. Each RSP Fund has obtained, or will obtain, exemptive relief from the Jurisdictions in connection with its activities as an "RSP Clone Fund".
7. Prior to the Acquisition, each of the Existing Funds entered into an ISDA Master Agreement (a “Master Agreement”) with BMO for the purposes of entering into a series of forward contracts (each a “Forward Contract”) typically one month in duration. BMO intends to enter into a Master Agreement and Forward Contracts with any new RSP Funds.
8. Except for the transaction costs payable to BMO in relation to any Forward Contracts, none of the RSP Funds, the Underlying Funds, GGOF or any affiliate or associate of any of the foregoing will pay any fees or charges of any kind to BMO in respect of the Forward Contracts.
9. The independent auditors of the Funds (the "Independent Auditors"), none of whom are themselves directors, officers or employees of GGOF, or any affiliate of GGOF, will review all proposed Master Agreements and any amendments to the pricing terms of any existing Master Agreement or Forward Contracts thereunder between the RSP Funds and the Related Counterparty to ensure that the RSP Funds will receive terms and pricing that are at least as favourable as those available to the RSP Funds with arm’s length counterparties from time to time.
10. The Prospectus, and any renewal thereof, will disclose the involvement of the Related Counterparty in the Forward Contracts, the review of the contracts by the Independent Auditors as well as all applicable charges in connection therewith.
11. So long as the debt of the Related Counterparty does not have the approved credit rating prescribed in National Instrument 81-102 (“NI 81-102"), the obligations of the Related Counterparty will be unconditionally guaranteed by an affiliate which does have an approved credit rating.
12. In order to hedge its obligations under the Forward Contracts, the Related Counterparty will likely, but is not required to, purchase units of the applicable Underlying Funds, directly or indirectly.
13. Except to the extent evidenced by this Decision and specific approvals granted or to be granted by the Canadian securities administrators under NI 81-102, the investments by each Fund in a Forward Contract have been structured to comply with the investment restrictions of the Legislation and NI 81-102.
14. The investments by the RSP Funds in the Forward Contracts will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the RSP Funds.
15. In the absence of this Decision, pursuant to the Legislation, the RSP Funds are prohibited from making and holding an investment in the Forward Contracts issued by the Related Counterparty.
16. In the absence of this Decision, pursuant to the Legislation, GGOF is: (a) prohibited from knowingly causing any investment portfolio managed by it to invest in Forward Contracts issued by the Related Counterparty in which a "responsible person" is an officer or director; and (b) required to file a report upon every investment by the Funds in a Forward Contract with the Related Counterparty.
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 are 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 under the Legislation is that the Applicable Requirements do not apply so as to prevent the RSP Funds from entering into Forward Contracts with the Related Counterparty,
PROVIDED that at the time a RSP Fund makes an investment in Forward Contracts of the Related Counterparty, the following conditions are satisfied:
(a) the pricing terms offered by the Related Counterparty to the RSP Fund under the Forward Contracts are at least as favourable as the terms committed by the Related Counterparty to other third parties, which are of similar size as the RSP Fund;
(b) prior to the RSP Fund entering into a proposed Master Agreement with the Related Counterparty, the Independent Auditors of the RSP Fund have reviewed the pricing terms offered by the Related Counterparty to the RSP Fund against the pricing offered by the Related Counterparty to other fund groups offering top funds of similar size, to ensure that the pricing is at least as favourable;
(c) the review by the Independent Auditors of the pricing terms of the Master Agreements and the Forward Contracts thereunder has been undertaken not less frequently than on an annual basis, and in addition on any pricing amendment to each existing Master Agreement and/or Forward Contract, as the case may be, during the term of such contract;
(d) the RSP Fund’s Prospectus, and any renewal thereof, discloses the Independent Auditors role and their review of the Master Agreement and/or Forward Contracts, as well as the involvement of the Related Counterparty; and
(e) the RSP Fund will enter into a proposed Master Agreement, or where the pricing terms have changed, an existing Master Agreement or Forward Contract thereunder, with the Related Counterparty only once confirmation of favourable pricing is received from the Independent Auditors of the RSP Fund.
DATED on September 24th, 2001.
J.A. Geller Howard I. Wetston