National Bank Securities Inc. et al.

Decision

Headnote

Policy Statement 11-203 Respecting Process for Exemptive Relief Application in Multiple Jurisdictions -- Relief granted to certain three-tier structures from multi-layering prohibition in paragraph 2.5(2)(b) of Regulation 81-102 to permit Corporate Classes to invest in funds-of-funds, which are more than 10% invested in underlying funds -- The three-tier fund structure is analogous to the current multi-layering exception in Regulation 81-102 -- Transparent investment portfolio and accountability for portfolio management -- Regulation 81-102 respecting Mutual Funds.

Applicable Legislative Provisions

Regulation 81-102 respecting Mutual Funds, ss. 2.5(2)(b), 19.1.

October 25, 2013

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NATIONAL BANK SECURITIES INC.

(the Filer)

AND

IN THE MATTER OF

MERITAGE CANADIAN EQUITY CLASS PORTFOLIO,

MERITAGE GLOBAL EQUITY CLASS PORTFOLIO,

MERITAGE GROWTH CLASS PORTFOLIO AND

MERITAGE EQUITY CLASS PORTFOLIO

(collectively, the Meritage Portfolios)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Makers) has received an application from the Filer on behalf of the Corporate Classes (as defined below) for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption pursuant to section 19.1 of Regulation 81-102 respecting Mutual Funds (c. V-1.1, r. 39) (Regulation 81-102) from the requirement of paragraph 2.5(2)(b) of Regulation 81-102 to permit each of the Corporate Classes to purchase or hold securities of a Trust Fund (as defined below), which holds more than 10% of its net asset value in securities of Underlying Funds (as defined below) (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

a) the Autorité des marchés financiers is the principal regulator for this application;

b) the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System (c. V-1.1, r. 1) (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon Territory and Nunavut; and

c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions (c. V-1.1, r. 3), Regulation 11-102 and Regulation 81-102 have the same meaning in this decision unless otherwise defined. The following additional terms shall have the following meanings:

Corporate Class means each of the Meritage Portfolios and any other mutual fund that will be a class of a mutual fund corporation for which the Filer will act as investment fund manager, and which seeks a similar return as a Trust Fund.

Trust Fund means each mutual fund established or that will be established pursuant to a declaration of trust for which the Filer acts or will act as investment fund manager and in which a Corporate Class may invest pursuant to the Exemption Sought.

Underlying Fund means each mutual fund subject to Regulation 81-102 in which a Trust Fund invests.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation incorporated under the Canada Business Corporations Act (L.R.C. (1985) c. C-44).

2. The Filer is or will be acting as the investment fund manager of each Corporate Class and Trust Fund.

3. The Filer is duly registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador. The Filer is also registered as a mutual fund dealer in each jurisdiction of Canada.

4. The Filer's head office is located at 1100 University Street, 10th Floor, Montreal, Québec, H3B 2G7.

5. The Filer is not in default of securities legislation in any jurisdiction of Canada.

The Corporate Classes, the Trust Funds and the Underlying Funds

6. The securities of the Corporate Classes, the Trust Funds and the Underlying Funds are or will be qualified for distribution in each jurisdiction of Canada pursuant to a simplified prospectus prepared and filed in accordance with Regulation 81-101 respecting Mutual Fund Prospectus Disclosure (c. V-1.1, r. 38).

7. Each Corporate Class, Trust Fund and Underlying Fund is or will be a reporting issuer under applicable securities legislation of each jurisdiction of Canada and is or will be subject to Regulation 81-102.

8. Each Corporate Class is intended to provide investors a version of a Trust Fund but with the flexibility to switch to another mutual fund that is a class of the same mutual fund corporation on a tax-deferred basis.

9. Each Corporate Class seeks a comparable return as a Trust Fund. In order to meet their investment objectives, each Corporate Class invests substantially all of its assets in O Series units of its corresponding Trust Fund. It may also invest directly in securities of the Underlying Funds and/or mutual funds similar to the Underlying Funds, based on similar weighting to that used by the Trust Fund.

10. Each Trust Fund is or will be a fund-of-funds that invests or will invest in one or more Underlying Funds and may also invest directly in cash, cash equivalents, money market funds, fixed income securities, other income-producing securities and/or equity securities.

11. An investment by a Trust Fund in securities of the Underlying Funds is and will be made in accordance with the provisions of section 2.5 of Regulation 81-102, including the prohibition that no Underlying Fund will hold more than 10% of its net asset value in securities of other mutual funds.

12. The change of investment objectives of the Meritage Portfolios were approved by their securityholders at special meetings held on October 22, 2013 in order to obtain a comparable return to their corresponding Trust Fund and to include the name of such Trust Fund. It is anticipated that the change to the investment objectives of the Meritage Portfolios will be effective on or about October 29, 2013.

13. No Corporate Class or Trust Fund is in default of securities legislation in any jurisdiction of Canada.

Reasons for the Exemption Sought

14. The Filer has determined that it would be more efficient and less costly for each Corporate Class if the Corporate Class achieves its investment objectives by investing substantially all of its assets in units of its corresponding Trust Fund instead of investing directly in the same securities and in the same proportions in which the Trust Fund invests.

15. A Corporate Class' investment in units of its corresponding Trust Fund will result in a multi-tier fund structure as a result of the Trust Fund's investment in Underlying Funds, which is contrary to the multi-layering restriction in paragraph 2.5(2)(b) of Regulation 81-102.

16. Except for the requirements in paragraph 2.5(2)(b) of Regulation 81-102, an investment by a Corporate Class in units of its applicable Trust Fund will otherwise be made in accordance with the provisions of section 2.5 of Regulation 81-102. Accordingly, there will be no duplication of fees between each tier of the multi-tier fund structure.

17. The Exemption Sought, which results in a Corporate Class investing directly in a Trust Fund, which invests in one or more Underlying Funds, is akin to, and no more complex than, the three-tier fund structure currently permitted under paragraph 2.5(4)(a) of Regulation 81-102 for clone funds.

18. The simplified prospectus of each Corporate Class will disclose:

(i) in the investment objectives, the name of the corresponding Trust Fund in which the Corporate Class invests;

(ii) in the investment strategies section: (A) that there will be no duplication of fees or sales charges between the Corporate Classes, the Trust Funds and the Underlying Funds; (B) the investment strategies of the Trust Fund; and (C) that the portfolio management services occur at the level of the Trust Fund with respect to the selection of Underlying Funds and any other securities.

19. The name of each Corporate Class will include part of the name of each Trust Fund.

20. Each Corporate Class will comply with the requirements under Regulation 81-106 respecting Investment Fund Continuous Disclosure (c. V-1.1, r. 42) relating to top 25 positions portfolio holdings disclosure in its management reports of fund performance and the requirements in Form 81-101F3 Contents of Fund Facts Documents relating to top 10 positions portfolio holdings disclosure in its Fund Facts as if the Corporate Class were investing directly in the Underlying Funds.

21. Each investment by a Corporate Class in its applicable Trust Fund and by a Trust Fund in the applicable Underlying Funds represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Corporate Class and the Trust Fund, respectively.

22. For the reasons provided above, the Filer has determined that it would not be prejudicial to the public interest to grant the Exemption Sought.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that the investment objectives of each Corporate Class as stated in the simplified prospectus, discloses the name of the Trust Fund in which the Corporate Class invests.

"Josée Deslauriers"
Senior Director, Investment Funds and Continuous Disclosure
Autorité des marchés financiers