Investors Global Bond Fund - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- section 19.1 of National Instrument 81-102 Mutual Funds -- exemption from section 2.1(1) of NI 81-102 to permit investments in evidences of indebtedness guaranteed by a government for up to 20% of a mutual fund's net assets where the evidences of indebtedness are rated "AA" and up to 35% of a mutual fund's net assets where the evidences of indebtedness are rated "AAA".
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.1(1), 19.1.
August 25, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NOVA SCOTIA,
NEW BRUNSWICK, NEWFOUNDLAND AND LABRADOR,
PRINCE EDWARD ISLAND, NUNAVUT,
NORTHWEST TERRITORIES, AND YUKON TERRITORY
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
INVESTORS GLOBAL BOND FUND
(the "Filer" or "Fund")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") exempting the Filer pursuant to section 19.1 of National Instrument 81-102 Mutual Funds ("NI 81-102") from the requirement in section 2.1(1) of NI 81-102 to permit the Filer to invest up to:
1. 20% of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction, or the government of the United States of America and are rated "AA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations; and
2. 35% of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction, or the government of the United States of America and are rated "AAA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations.
(paragraphs 1 and 2 collectively will be referred to as the "Requested Relief")
Under the Mutual Reliance Review System for Exemptive Relief Applications
(a) the Manitoba Securities Commission is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
1. The Fund is a unit trust mutual fund governed by a Restated Trust Agreement dated September 23, 1994. The Fund commenced the distribution of its units in September, 1992. The Fund is currently distributed under a Simplified Prospectus and Annual Information Form dated June 30, 2006 (SEDAR Project # 934947).
2. Investors Group Trust Co. Ltd. (head office in Winnipeg) is the trustee of the Fund. Day-to-day investment advisory services and administration, including unitholder record keeping and tax reporting, is provided by I.G. Investment Management, Ltd. (the "Manager"), also of Winnipeg. These companies are directly or indirectly owned by IGM Financial Inc. (formerly known as Investors Group Inc.).
3. The Fund's objective is to provide interest income and potential capital growth by investing primarily in bonds and debentures of non-Canadian issuers. The Fund seeks to achieve its objective through participation in the debt markets of various countries by primarily investing in fixed income securities issued by non-Canadian issuers, including:
• foreign governments, their guarantees and agencies, as well as the debt issues of the political subdivisions of those countries;
• supranational organizations such as the World Bank; and
• foreign corporations.
4. The Fund may also invest a portion of its assets in high-yield debt securities rated below investment grade, including debts issued by governments of emerging market countries, provided that the Fund will not purchase any debt security rated below "BBB" (or an equivalent rating) by any Recognized Credit Rating Agency and further provided that the Fund will maintain an overall weighted average of its debt portfolio at a rating of "A" (or an equivalent rating) or higher.
5. The Fund issues one retail series of units which are available for purchase under a Deferred Sales Charge purchase option and a No-Load purchase option. As at September 30, 2005, the Fund had approximately 7,114,000 Series C (retail series) units issued and outstanding. The Fund's net asset value on that date was approximately $161,303,000 for both Series C (retail series) and Series Z (institutional series) units.
6. The Fund's benchmark index for its peer group is the Citicorp World Government Bond Index (formerly known as the Salomon Smith Barney World Government Bond Index) (the "Index"). As disclosed in the most recent annual management report of fund performance, the annual compound performance of the Fund as compared to the Index is as follows (as at September 30, 2005):
7. The Fund is also held as an Underlying Fund by several other Investors Group fund-of-funds (referred to as 'Portfolio' funds), as indicated below (as at December 31, 2004):
8. Sections 2.1(1) and 2.1(2) of NI 81-102 restricts mutual funds from investing no more than ten (10%) percent of their assets in any single issuer, save and except for securities issued or guaranteed as to principal and interest by the Government of Canada or an agency thereof, or by the Government of any Province of Canada or an agency thereof, or by the Government of the United States of America or an agency thereof.
9. By letter dated January 26, 1993 from The Manitoba Securities Commission, the Fund obtained relief from Section 2.04(1) of National Policy Statement No. 39 (the forerunner of Section 2.1 of NI 81-102) to permit it to invest up to 25% of its net assets in each of the securities issued or guaranteed by each of the governments of Japan, Germany, France, and the United Kingdom. Pursuant to Section 19.2(3) of NI 81-102, the Fund continues to rely upon this exemption. In addition, by Order dated February 1, 1993 from the Quebec Securities Commission (Decision No. 92-C-0016), the Fund obtained similar relief from the application of Article 283 of the Quebec Securities Regulation.
10. In 1993, when the Fund obtained its current relief, there were greater diversification opportunities as the European debt markets comprised several currency-denominated issuers (including well developed and liquid markets for Lira, Franc, and Mark issued debt securities), each impacted by national government monetary policies. In contrast, today the European debt markets are dominated by Euro-currency denominated debt which comprises approximately 40% of the world government bond market and the coordinated monetary policy followed by the members of the European Union has effectively reduced diversification opportunities. Therefore, under existing circumstances, if the Manager believes that Euro-currency denominated debt instruments are relatively over-valued, a higher exposure to other debt markets may be required.
11. In Companion Policy 81-102CP, the Canadian Securities Administrators state their views on various matters relating to NI 81-102. Section 3.1(4) of the Companion Policy indicates that the relief from paragraph 2.04(1)(a) of NP39, which is replaced by Section 2.1 of NI 81-102, has been provided to mutual funds generally under the following circumstances:
1) The mutual Fund has been permitted to invest up to 20% of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction or the government of the United States of America and are rated "AA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations; and
2) The mutual fund has been permitted to invest up to 35% of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued by issuers described in paragraph 1) and are rated "AAA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations.
Decision
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 except that the Filer is permitted to invest up to 25% of its net assets in each of the securities issued or guaranteed by each of the governments of Japan, Germany, France, and the United Kingdom.