Gwaii Forest Charitable Trust
PO Box 588
Masset BC V0T 1M0
Phone: 1-250-626-3654/Fax: 1-250-626-3261 (Masset Office)
Phone: 1-250-559-8883/ Fax: 1-250-559-8876 (Skidegate Office)
Gwaii Forest Charitable Trust (the “Trust”)
Operations Report for the Fiscal Year Ended Dec 31st 2013
Pursuant to Sections 2(11) and 36(b) of the Deed of Trust settled as of March 29, 2007 (the “Trust Deed”)
Preamble:
The audited statement of the financial position of the Trust as of December 31, 2013 can be found under the heading, “GFCT 2013 Financial Statement” on the Trust’swebsite at:
Over the course of the fiscal year ending December 31, 2013 (“Fiscal 2013”), the onlywithdrawals of funds from the Trust’s investment fund (the “Fund”) were expenditures solely for the accumulation of investment income by the Fund and the paying of monthly reoccurring operational expenses related to the accumulation of that income.
The temporary discontinuance of project funding stemmed directly from the financial crisis of 2008.Since 2009 the Trust has halted granting and allowed the Fund to re-accumulate reserves. Trustees had agreed to support an accumulation of at least $3 million before further project funding would be considered. The $3 million reserve was an amount estimated to be the sum of:
(i)Two years of Trust operational costs, plus
(ii)Two years of project funding.
In 2012, the Fund passed the $3 million reserve mark, ending the 2012 fiscal year with an unrestrictedbalance of roughly $4.3 million or a little over 14% of the gross Fund. With a continued eye to prudence in light of ongoing world economic instability, on November 08th 2012 the Trustees set a long-term internal goal of 20% of the gross Fund as an appropriately reasonable reserve.
At the close of 2013, the fund had surpassed the 20% buffer recommendation by Trustees, and
Trustees began development of the 2014 granting strategy. Granting and expense guidelines will continue to mirror those of the Gwaii Trust Society, with total expenses restricted to a maximum of 4.0% of assets under administration.
Expense ratios continue to be calculated on a simplistic “all in” basis, differing itself from manyother funds, with Trustees believing this tends to more accurately reflect total costs vs total grants.[1]
In 2012 Trustees entered into the consultation process with key area stakeholders, with this process carrying over into 2013. Community discussion centered primarily upon the appointment of an agent that would be authorized by the Trust to administer the granting process. Communities were under the impression that such an agency agreement would bestow authority of how the funding would be spent. Trustee response was to advise the groups that the Trustees could not abdicate any portion of their authority by way of an agency agreement; however an agent could manage the basic administration of the programs. The Trustees further explained that, as demonstrated in the Trust’s early days,[2]this methodology would create a duality of expenses, and a duplication of administrative processes, effectively doubling reporting time, expense and processes.
Community leader response was somewhat surprising; groups felt that this “double up” of costs could be seen as economic development, creating employment, and therefore direct economic benefit into the communities. The group also expressed the belief that by having a separate organization manage the funding, communities would realize more control over project approvals.
The final point that was raised was the connection between the two organizations, protocol table leadership [3]clearly wanted to see a separation between the two entities, even though strict Trustee mandated control of both funds is the fundamental underlying principle of the Deed. The community’s ability to appoint the board of GTS and, therefore the Trustees is clearly outlined within the Deed, inclusive of relatively short two year terms; since the Trust’s inception, all Trustee decisions have been consensus based, and without objection.
The Trustees were flummoxed by virtue of their clearly mandated position, and fiduciary duties as trustees and political leader’s insistence that things should be different from what is legally required as the basis of the ceding of control of the GFCT fund to Haida Gwaii management in 2007. By the summer of 2013 it was clear that the Trustees were legally incapable of giving up their position and the political leaders remained entrenched in their position. The Trustees were legally required to up hold the express terms of the Deed. The Trustees accordingly agreed that the best value for the Trust was a solution that carried the most reasonable administrative costs, and streamlined the reporting functions between Trustees. That solution was to utilize the Gwaii Trust administration systems and processes, but maintain a degree of separation by eventually hiring an individual to work under the guidance of the Executive Director as a GFCT administration manager.
As the Trustees reengaged in the early steps of the granting process there followed a close examination of the Trust Deed and its purposes. Trustees wanted to more clearly understand the broadest range of possibilities for programming options that the Deed would allow. To that end, the Trustees sought professional independent advice from renowned Trust expert, Dr. Donovan Waters, widely considered as Canada’s leading expert in the area of trust law and author of the leading text book on the subject. After a series of meetings and careful examination of the Deed of Trust,and is founding subsidiary documents as referenced in the Deed, (The South Moresby Forest Replacement Account’s (SMFRA)2003Strategic Plan)Dr. Waters determined that the Deed’s purposes included those which could not be considered “charitable”, thereby rendering the Trust invalid, which in turn, if correct, would mean that GTS held the GFCT fund in a bare trust[4] for the Governments of B.C. and Canada. Dr. Waters advised the Trustees to approach the Crown to resolve this possible complication.
The Trustee’s acting on the advice of their professional advisors, arranged a meeting with the representatives of the BC Government and its legal teams and the Trust’s legal advisor to apprise the Crown of this situation. In early September of 2013 the Gwaii Forest Charitable Trust’s Executive Director, and legal counsel met with members of the BC Government and its legal team. The Crown took our findings under advisement, then without specifically concurring with Dr. Waters' opinion, acknowledged that the opinion was a valid concern. The Crown Directed the Trustees in writing, to maintain the Trusts status quo, with the exception of funding any future projects, until the issues raised in the opinion were satisfactorily resolved. The Crown advised that their goal for achieving such a resolution would be March 31st 2014.
Without the negotiation of such resolution complete by the end of 2013 the Trustees were unable to provide the otherwise mandated 2014 budget, operational plan, or programming infrastructure for the Trust. At the close of 2013 Trustees continued in negotiations to obtain a resolution to the issues raised by Dr. Waters' opinion by the March 31st 2014 deadline.
Projects:
- Summary and explanation of practices used in review, evaluation and approval of Eligible Projects in the fiscal year ended December 31, 2013.
No projects were reviewed or approved in fiscal 2013.
- Full Listing of all Eligible Projects for which funding by the Trust was funded in the fiscal year ended December 31, 2012.
No projects were approved nor advanced in Fiscal 2013
Summary and explanation of the Trust’s Statement of Financial Position in fiscal 2013; material changes and points of note.
Financial Results:
Expenses - As mentioned earlier the Trust did not process any project funding withdrawals from the Fund in 2013. The Fund’s only expense items were those necessary to maintain the Fund’s ongoing investments and audit/accounting processes.
Income – The Fund grew by in excess of $4.3 million over fiscal 2012’s year-end, or roughly some 14% over the previous year, making 2013 another strong income year for the Trust. Significant global equity returns coupled with minimal fund withdrawals played a large role in 2013 returns.
There were no Statement of Investment Policies and Procedures (the “SIPP”) revisionsin 2013
Summary and explanation of the investment strategy of GFCT in fiscal 2013 and any material changes in the investment of the property of the Trust.
As mentioned previously there were no material changes to the Trust’s (SIPP) in 2013. The following table sets out the respective weightings of asset classes in the Trust’s portfolio ofassets as at the end of calendar 2013 (Dec 31st 2013):
______
Asset ClassAs a % of Portfolio SIPP Range__
Canadian Equities21%15 – 25%
International Equities36%28 – 38%
Total Equities57%43 – 63%
Real Return Bonds10%10 – 20%
Federal Bonds03%
Provincial & Municipal Bonds06%
Corporate Bonds08%
Total Nominal Bonds18%12 – 22%
High Yield Bonds03%00 – 10%
Total Bonds31%22 – 52%
Mortgage Fund02%
Real Estate10%
Total Mortgage & Real Estate Funds12%05 – 15%
Cash00%
Treasury Bills & Short Term Investments00%
Total Cash / Short Term Notes00%00 – 00%
Total 100%70 – 130%
[1] Typically granting agencies break out fund management costs, some staffing costs, and project costs from the organizations total expenses when calculating cost of grants and their financial ratios. The result is considered by some to more directly reflect the specific cost of grant making, without the inclusion of the cost of generating or administering funds, however the Trustees of the GFCT prefer to reflect all expenses vs grants in order to present a more holistic view of overall costs to Islanders.
[2] When the Trust was first created the originating government program was known as the South Moresby Forest Repatriation Account (SMFRA) this fund was a co-managed fund between appointed government representatives and a local administrative group, The Gwaii Forest Society (GFS). When the fund was transferred to the Gwaii Forest Charitable Trust the Trust Deed allowed for the appointment of an agent, and the Trustees decided to utilize GFS as an agent through the transitioning of the fund. Later it was determined that significant cost savings could be had through the consolidation of backroom office duties with the Gwaii Trust Society.
[3]The Protocol Table is an ad hoc group of individuals, with no formal appointment process, largely made up of municipal or local area quasi political figures.
[4] A Bare Trust or a “Simple” Trust is where funds are held on demand for a beneficiary (In this case the Crown, both Federal & Provincial) – Gwaii Trust Society is the appointed agent for thewould-be GFCT funds, while monies are held on demand for the Crown.