Securities Law & Instruments
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from multi-layering prohibition in paragraph 2.5(2)(b) of NI 81-102 to permit certain top funds to invest 100% of their assets in bottom funds, which are more than 10% invested in underlying funds and ETFs -- The three-tier fund structure is analogous to the current multi-layering exception in NI 81-102 -- Transparent investment portfolio and accountability for portfolio management -- National Instrument 81-102 Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.5(2)(b), 19.1.
April 12, 2011
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
INVESCO TRIMARK LTD.
IN THE MATTER OF
INVESCO INTACTIVE DIVERSIFIED INCOME
PORTFOLIO CLASS, INVESCO INTACTIVE
BALANCED INCOME PORTFOLIO CLASS,
INVESCO INTACTIVE BALANCED GROWTH
PORTFOLIO CLASS, INVESCO INTACTIVE GROWTH
PORTFOLIO CLASS, AND INVESCO INTACTIVE
MAXIMUM GROWTH PORTFOLIO CLASS
(THE "INITIAL INTACTIVE TOP FUNDS")
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Initial Intactive Top Funds and other Invesco Intactive mutual fund share classes of Invesco Corporate Class Inc. to be established by the Filer (together with the Initial Intactive Top Funds the "Intactive Top Funds") for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Intactive Top Funds from the restriction contained in section 2.5(2)(b) of National Instrument 81-102 - Mutual Funds ("NI 81-102") that a fund not invest in another fund if the other fund holds more than 10% of the market value of its net assets in securities of other mutual funds (the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
a. the Ontario Securities Commission 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon (the "Other Jurisdictions").
Defined terms contained in National Instrument 14-101 - Definitions and MI 11-102 have the same meaning if used in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Corporation:
1. The head office of the Filer is located in Toronto, Ontario.
2. The Filer is or will be the manager of the Intactive Top Funds, the bottom funds in which the Intactive Top Funds invest will invest (each an "Intactive Bottom Fund" and collectively "Intactive Bottom Funds") and the mutual funds subject to NI 81-102 in which Intactive Bottom Funds will invest (the "Underlying Funds").
3. Each Intactive Top Fund will be a class of shares of Invesco Corporate Class Inc. The investment objectives of an Intactive Top Fund and the Intactive Bottom Fund in which it invests will be substantially the same, except that the Intactive Top Fund will seek to achieve its investment objective by investing substantially all of its assets in securities of the applicable Intactive Bottom Fund or, if necessary, investing in mutual funds that are identical to or substantially similar to those in which the Intactive Bottom Fund invests.
4. Neither the Filer nor the Initial Intactive Top Funds are in default of securities legislation in any jurisdiction of Canada.
5. Each Intactive Bottom Fund is or will be a fund-of-funds that mainly invests in a combination of:
(a) Underlying Funds managed by the Filer;
(b) exchange traded funds that are or will be mutual funds whose securities trade on a stock exchange in Canada or the United States and which attempt to replicate the performance of various widely quoted securities indices ("Index ETFs"). As a result, each Index ETF will at the time of investment by the Intactive Bottom Fund in such Index EFT, meet the definition of an "index participation unit" under section 1.1 of NI 81-102;
(c) exchange traded funds that are or will be mutual funds whose securities trade on a stock exchange in Canada or the United States and which seek to replicate the performance of gold and/or silver on an unlevered basis or the value of a specified derivative the underlying interest of which is gold and/or silver on an unlevered basis ("Gold/Silver ETFs");
(d) gold, certain permitted gold certificates and specified derivatives the underlying interest of which is gold on an unlevered basis (collectively "Gold");
(e) silver, certain permitted silver certificates and specified derivatives the underlying interest of which is silver on an unlevered basis (collectively "Silver"); and
(f) cash, cash equivalents and money market funds (collectively, "Cash").
6. On August 10, 2010, the Filer, on behalf of its existing mutual funds and mutual funds that it may in the future manage which are subject to NI 81-102 (collectively, "NI 81-102 Funds"), obtained relief from the restrictions contained in sections 2.3(f), 2.3(h), 2.5(2)(a), 2.5(2)(b) and 2.5(2)(c) of NI 81-102 to permit NI 81-102 Funds to invest up to 10% of their net assets, taken at market value at the time of the transaction, in Gold/Silver ETFs, Gold and/or Silver ("Gold/Silver Relief").
7. An Intactive Top Fund's investment in securities of its respective Intactive Bottom Fund will therefore result in multiple-tier fund structures. These multiple-tier fund structures with respect to investments by an Intactive Bottom Fund in:
(a) money market funds are permitted under section 2.5(4)(b)(i) of NI 81-102;
(b) Index ETFs are permitted under section 2.5(4)(b)(ii) of NI 81-102; and
(c) Underlying Funds and Gold/Silver ETFs are contrary to the multi-layering restriction in section 2.5(2)(b) of NI 81-102.
8. A preliminary simplified prospectus and annual information form dated March 14, 2011 for the Initial Intactive Top Funds was filed in Ontario and the Other Jurisdictions under SEDAR project 1710650.
9. Invesco Intactive Diversified Income Portfolio, Invesco Intactive Balanced Income Portfolio, Invesco Intactive Balanced Growth Portfolio, Invesco Intactive Growth Portfolio and Invesco Intactive Maximum Growth Portfolio, the funds in which the Initial Intactive Top Funds will invest, are currently qualified for distribution in Ontario and the Other Jurisdictions pursuant to simplified prospectuses dated August 11, 2010.
10. Each of the Intactive Top Funds, Intactive Bottom Funds and Underlying Funds is or will be (a) an open-end mutual fund established under the laws of Ontario; (b) a reporting issuer under the securities laws of each of the provinces and territories of Canada; and (c) qualified for distribution in all provinces and territories of Canada.
11. An investment by an Intactive Top Fund in securities of an Intactive Bottom Fund will be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirement in section 2.5(2)(b).
12. An investment by Intactive Bottom Fund in securities of:
(a) money market funds will be made in accordance with the provisions of section 2.5 of NI 81-102;
(b) Index ETFs will be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirement in section 2.5(2)(e) from which the Filer has received exemptive relief on May 8, 2008 to pay arm's length third party brokers brokerage commissions for executing trades in securities of Index ETFs (the "May 8, 2008 Relief");
(c) Gold/Silver ETFs will be made in accordance with the provisions of the Gold/Silver Relief; and
(d) Underlying Funds will be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirement in section 2.5(2)(b).
Accordingly, there will be no duplication of fees between each tier of the multi-tier fund structure except as permitted under the May 8, 2008 Relief.
13. The multi-tier fund structure that will result from an Intactive Top Fund's investment in securities of an Intactive Bottom Fund will be akin to, and no more complex than, the multi-tier fund structure currently permitted under sections 2.5(4)(a) and 2.5(4)(b)(ii) of NI 81-102.
14. The simplified prospectuses of each Intactive Top Fund will disclose that it invests directly in securities of an Intactive Bottom Fund and that the Intactive Bottom Fund mainly invests directly in a combination of Underlying Funds, Index ETFs, Gold/Silver ETFs, Gold, Silver and/or Cash. It will therefore be clear to investors that accountability for portfolio management is at the level of the Intactive Bottom Fund. In addition, the Filer will comply with the requirements under National Instrument 81-106 Investment Fund Continuous Disclosure relating to top 25 positions disclosure in the Management Report of Fund Performance as if the applicable Intactive Top Fund were invested directly in the Underlying Funds and Gold/Silver ETFs. This will provide transparency to investors relating to the investment portfolio.
15. An investment by an Intactive Bottom Fund in the Underlying Funds, Index ETFs, Gold/Silver ETFs, Gold, Silver and/or Cash represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Intactive Bottom Fund.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make a decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted to allow the Intactive Top Funds to invest in securities of Intactive Bottom Funds subject to compliance with all other requirements of section 2.5, except to the extent that discretionary relief has been granted from any such requirements.