Burgundy Asset Management Ltd. and Burgundy Total Return Bond Fund
Headnote
Mutual funds exempted from the sale and redemption of securities of a mutual fund restriction to allow the mutual funds to process subscriptions and redemptions based on the next determined weekly net asset value, instead of the next determined net asset value - The mutual fund group offers weekly subscription and redemption of their units - Investors of the mutual funds are invested through managed accounts with the funds' portfolio manager.
Statutes Cited
Securities Act, R.S.O. 1990, c. S.5, as am.
Rules Cited
National Instrument 81-102 - Mutual Funds, ss. 9.3, 10.3, 19.1.
April 17, 2008
IN THE MATTER OF
NATIONAL INSTRUMENT 81-102 MUTUAL FUNDS
(NI 81-102)
AND
IN THE MATTER OF
BURGUNDY ASSET MANAGEMENT LTD.
(the Applicant)
AND
IN THE MATTER OF
BURGUNDY TOTAL RETURN BOND FUND
(the Fund)
DECISION
Background
The Ontario Securities Commission (the OSC) received an application from the Applicant for a decision, pursuant to section 19.1 of NI 81-102, exempting the Fund and any other investment fund managed by the Applicant that is a reporting issuer (collectively, with the Fund, the Burgundy Funds) from:
(a) the requirement in section 9.3 that the issue price of a security of a mutual fund to which a purchase order pertains shall be the net asset value per security of that class, or series of a class, next determined after the receipt by the mutual fund of the order; and
(b) the requirement in section 10.3 that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the net asset value of a security of that class, or series of a class, next determined after the receipt by the mutual fund of the order (the Requested Relief).
Representations
This Decision is based on the following facts represented by the Applicant:
(a) The Applicant is a corporation incorporated under the laws of Ontario. The Applicant is the manager, trustee and investment adviser of the Fund and will be the manager, trustee and investment adviser of any other Burgundy Funds.
(b) The Applicant is registered under the securities legislation of Ontario as an adviser in the categories of investment counsel and portfolio manager.
(c) The Fund is a mutual fund trust governed by a Master Declaration of Trust under the laws of Ontario.
(d) The Fund is a reporting issuer in Ontario pursuant to a current simplified prospectus and annual information form dated July 31, 2007, as amended and restated on September 18, 2007.
(e) The Fund and any other Burgundy Funds are only available to clients of the Applicant who have executed a discretionary investment management account agreement with the Applicant.
(f) The Applicant manages its client's assets by investing them in securities, which may include units of the Fund, all as appropriate for each client's investment objectives and risk tolerance.
(g) The Fund has amended its simplified prospectus and has provided 60 days written notice to its unitholders of its intention to commence using specified derivatives.
(h) Paragraph 14.2(3) of National Instrument 81-106 Investment Fund Continuous Disclosure requires that the net asset value of an investment fund be calculated at least once every business day if the investment fund will use specified derivatives and at least once in each week if the investment fund will not use specified derivatives.
(i) Currently, all of the Applicant's investment funds calculate their net asset value on a weekly basis, as none of them use specified derivatives.
(j) Once the Fund or any other Burgundy Fund commences using derivatives, such fund will be required to calculate its net asset value on a daily basis.
(k) The Applicant proposes to calculate the net asset value for the Fund and any other Burgundy Fund that uses derivatives on a daily basis in order to meet its obligations under NI 81-102 regarding the use of derivatives, including the obligation to daily mark-to-market the value of its derivatives.
(l) Sections 9.3 and 10.3 of NI 81-102 require that the purchase or redemption price of units of a fund be the net asset value per unit next determined after receipt, by the fund, of the purchase or redemption order. If the Fund moves to a daily net asset value calculation for the purposes of valuing its derivatives, it will be forced to accept purchases and redemptions on a daily basis.
(m) The Applicant has structured its investment fund operations so that it can consolidate all purchase and redemption orders by its managed accounts into one efficient weekly transaction (Weekly Purchase/Redemption Date). It has determined that effecting such purchases and redemptions on a weekly basis strikes the best balance between the needs of a client to invest or access its assets in a timely manner, and the need to minimize the impact of such transactions on other clients in its investment funds.
(n) The Applicant is concerned that more frequent flows of assets into, and out of, its investment funds will impose greater transactional costs on its clients in the investment funds by increasing brokerage charges associated with meeting the purchase and redemption orders.
(o) As the Applicant has discretionary authority over all of the assets of its clients who invest in the Burgundy Funds and as the Applicant is also the portfolio manager of the Burgundy Funds, any risks to its clients that are associated with a Burgundy Fund's use of derivatives will be managed at the portfolio level of the Burgundy Fund, rather than at the managed account level.
Decision
The Director is satisfied that it would not be prejudicial to the public interest to grant the Requested Relief and orders that the Requested Relief be granted to the Burgundy Funds, provided that:
(i) each Burgundy Fund that uses derivatives calculates its net asset value, and values its derivative positions, on a daily basis;
(ii) each Burgundy Fund to which a purchase or redemption order pertains, uses the net asset value per security, determined as of the next Weekly Purchase/Redemption Date, to calculate the issue and redemption price of its securities; and
(iii) the only investors in the Burgundy Fund are those that have signed a discretionary management agreement with the Applicant.