Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from subsection 5.3.1(a) of National Instrument 81-102 Mutual Funds requiring it to obtain the approval of an independent review committee under NI 81-107 Independent Review Committee for Investment Funds prior to changing the funds' auditor.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.3.1(a), 19.1
May 24, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,
THE NORTHWEST TERRITORIES, NUNAVUT
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
NORTHWEST MONEY MARKET FUND,
NORTHWEST CANADIAN EQUITY FUND,
NORTHWEST CANADIAN BOND FUND,
NORTHWEST CANADIAN DIVIDEND FUND,
NORTHWEST GROWTH AND INCOME FUND,
NORTHWEST GLOBAL EQUITY FUND
(FORMERLY NORTHWEST FOREIGN EQUITY FUND),
NORTHWEST U.S. EQUITY FUND,
NORTHWEST EAFE FUND,
NORTHWEST SPECIALTY HIGH YIELD BOND FUND,
NORTHWEST SPECIALTY GLOBAL HIGH YIELD
BOND FUND, NORTHWEST SPECIALTY EQUITY FUND,
NORTHWEST SPECIALTY INNOVATIONS FUND,
NORTHWEST SPECIALTY GROWTH FUND INC.,
NORTHWEST QUADRANT CONSERVATIVE PORTFOLIO,
NORTHWEST QUADRANT GROWTH AND
INCOME PORTFOLIO, NORTHWEST QUADRANT ALL
EQUITY PORTFOLIO, NORTHWEST QUADRANT MONTHLY
(the "Northwest Funds")
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Northwest Funds and Northwest Mutual Funds Inc. (the "Manager") for a decision under section 19.1 of National Instrument 81-102 Mutual Funds (the "Legislation" or "NI 81-102") for an exemption from the requirement contained in subsection 5.3.1 of NI 81-102 requiring the approval of an independent review committee under National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) prior to changing the Northwest Funds' auditor (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Applicant:
1. The Manager acts as the manager and trustee of the Northwest Funds.
2. The Northwest Funds, other than Northwest Specialty Growth Fund Inc., are open-ended mutual fund trusts governed by the laws of the Province of Ontario. Northwest Specialty Growth Fund Inc. is a mutual fund corporation governed by the Companies Act (Quebec).
3. The Northwest Funds are currently qualified for distribution in all of the provinces and territories of Canada under the simplified prospectus and annual information form dated June 14, 2006, amended March 1st, 2007 (the Simplified Prospectus).
4. The Northwest Funds are reporting issuers under the securities legislation of each of the provinces and territories of Canada. To the knowledge of the Applicant, none of the Northwest Funds is in material default of any of the requirements of the securities legislation in any of the provinces or territories of Canada.
5. For business considerations the Manager has determined that it is in the interests of the Northwest Funds that their current auditor Raymond Chabot Grant Thornton LLP be replaced by PricewaterhouseCoopers LLP.
6. To the knowledge of the Applicant, there have been no "reportable events" within the meaning of such term under National Instrument 51-102 in relation to the Northwest Funds' two most recently completed financial years.
7. None of the Northwest Funds has yet established an independent review committee under NI 81-107.
8. Each of the Northwest Funds shall establish an independent review committee within the timelines set out in NI 81-107.
9. Without the Requested Relief, the Northwest Funds are unable to comply with the requirement of NI 81-102, implemented coincidentally with the introduction of NI 81-107, that an independent review committee approve a change in auditor of a mutual fund.
10. For the purpose of considering the approval of the proposed change in auditor, the Manager will appoint an ad hoc committee which will consist of at least 3 persons each of whom will be "independent", as such term is defined in NI 81-107 (the "Independent Group").
11. The Independent Group will not approve the change in auditors unless it has determined, after reasonable inquiry, that the change:
(a) is proposed by the Manager free from any influence by an entity related to the Manager and without taking into account any consideration relevant to an entity related to the Manager;
(b) represents the business judgment of the Manager uninfluenced by considerations other than the best interests of the Northwest Funds; and
(c) achieves a fair and reasonable result for the Northwest Funds.
12. Each member of the Independent Group in considering the proposed change in auditor will:
(a) act honestly and in good faith, with a view to the best interests of the Northwest Funds; and
(b) exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
13. The Northwest Funds will not relieve the members of the Independent Group from liabilities for losses that arise from a failure to satisfy the standard of care set out in paragraph 12 above.
14. The cost of any indemnification or insurance coverage paid for by the Manager or any associate or affiliate of the Manager to indemnify or insure the members of the Independent Group in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph 12 above will not be paid either directly or indirectly by the Northwest Funds.
15. The Simplified Prospectus discloses that securityholders of the Northwest Funds will be sent a written notice at least 60 days before the effective date of the change of auditor.
16. The Applicant will comply with the reporting requirements related to a change in auditor under Part 13 of National Instrument 81-106 Investment Fund Continuous Disclosure.
Each of the Decision Makers 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 under the Legislation is that the Requested Relief is granted provided that:
(a) prior to the Change of Auditor being completed, the Independent Group has reviewed and approved the Change of Auditor and that each member, after reasonable inquiry, is of the opinion that the Change of Auditor:
(i) is proposed by the Manager free from any influence by an entity related to the Manager and without taking into account any consideration relevant to an entity related to the Manager;
(ii) represents the business judgment of the Manager uninfluenced by considerations other than the best interests of the Northwest Funds; and
(iii) achieves a fair and reasonable result for the Northwest Funds;
(b) securityholders of the Northwest Funds will be sent a written notice at least 60 days before the effective date of the change of auditor; and
(c) there are no "reportable events" as defined in NI 81-106.