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, ss. 2.4(f) and (h), 19.1.
October 31, 2013
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
1832 ASSET MANAGEMENT L.P.
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of the existing and future mutual funds for which the Filer or an affiliate of the Filer acts as manager and that (i) are subject to National Instrument 81-102 -- Mutual Funds (NI 81-102) (other than Dynamic Strategic Resource Class, Dynamic Precious Metals Fund, money market funds as defined in NI 81-102 and the funds that obtained the First 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) 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 Silver Relief) 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); and
(b) a decision to revoke and replace the Second Prior Relief (as defined below) (the Revocation Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the Principal Regulator) 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 (together with Ontario, the Jurisdictions).
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.
"First Prior Relief" means the relief granted in the June 12, 2008 decision Goodman & Company, Investment Counsel Ltd. (Re), (2008), 31 OSCB 6245 whereby fourteen mutual funds managed by GCIC Ltd. (GCIC) 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.
"Second Prior Relief" means the relief granted in the January 26, 2012 decision Goodman & Company, Investment Counsel Ltd. (Re), (2012), 35 OSCB 1122 whereby each of the existing and future mutual funds managed by GCIC (other than money market funds and the funds that obtained the First Prior Relief) obtained relief to invest up to 10% of the net assets of each fund, taken at the market value thereof at the time of investment, in each of silver, Permitted Silver Certificates and specified derivatives the underlying interest of which is silver on an unlevered basis.
"Prior Relief" means collectively the First Prior Relief, the Second Prior Relief, the relief issued to Dynamic Strategic Resource Class in the November 11, 2011 decision Goodman & Company, Investment Counsel Ltd. (Re), (2011), 34 OSCB 12241 and the relief issued to Dynamic Precious Metals Fund in the August 6, 1993 decision Re Dynamic Precious Metals Fund.
This decision is based on the following facts represented by the Filer in respect of the Filer and the Funds:
1. The Filer is an Ontario limited partnership, which is wholly-owned, indirectly, by The Bank of Nova Scotia (BNS). The general partner of the Filer is 1832 Asset Management G.P. Inc., an Ontario corporation wholly-owned directly by BNS with its head office in Ontario.
2. The Filer is registered as (i) a portfolio manager in all of the provinces of Canada, and in the Yukon; (ii) an exempt market dealer in all of the provinces of Canada (except Prince Edward Island and Saskatchewan); (iii) an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador; and (iv) a commodity trading manager in Ontario.
3. 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 or of Canada. 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.
4. The Filer or an affiliate of the Filer is, or will be, the manager of the Funds.
5. Neither the Filer nor any of the Funds is in default of securities legislation in any of the Jurisdictions.
6. Each Fund that relies on the Silver Relief will be permitted in accordance with its investment objectives and investment strategies to invest in Silver.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. Prior to its investing in Silver, the simplified prospectus for each of the Funds will disclose (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.
14. If the Filer or an affiliate of the Filer determines that 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 or the affiliate of the Filer will comply with the material change obligations for that Fund.
15. The Application has been submitted by the Filer in connection with a proposed internal reorganization of BNS's asset management business (the Reorganization).
16. The Reorganization is structured as an internal consolidation of the asset management business currently conducted by certain affiliated BNS entities, namely, GCIC, WaterStreet Family Capital Counsel Inc. and CPA Securities Inc. -- each of which is wholly-owned directly or indirectly by BNS -- into the Filer. Under the Reorganization, the asset management business conducted by GCIC at the time of the Reorganization will be transferred to the Filer. The closing date of the Reorganization is November 1, 2013 (the Completion Date).
17. If the Reorganization is completed as contemplated, GCIC will cease to carry on registrable business and will have its various registrations under the Legislation revoked. Thereafter, the business of GCIC will be carried on by the Filer as a separate division of the Filer.
18. The Reorganization does not involve an amalgamation.
19. Under an order dated January 26, 2012, the Principal Regulator granted the Second Prior Relief which is substantially the same as the Silver Relief.
20. The Filer is not able to rely on the Second Prior Relief following the Reorganization since the terms of that relief do not permit it to flow through to the Filer.
21. Except for the Second Prior Relief, the Revocation Relief has no impact on the Prior Relief.
22. Accordingly, as of the Completion Date, the Filer is seeking the Revocation Relief to revoke and replace the Second Prior Relief and will require the Silver Relief.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that:
(a) the Revocation Relief is granted; and
(b) the Silver Relief is granted provided that:
(i) the investment by a Fund in Silver is in accordance with the fundamental investment objectives of the Fund; and
(ii) 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.
This decision is effective on the Completion Date.