National Policy 11-203 Porcess for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption granted from the requirements of paragraphs 2.5(2)(a) and (c) of National Instrument 81-102 Investment Funds to allow a mutual fund to invest up to 10% of its net asset value in a pooled fund -- Exemption granted on the basis that the pooled fund will comply with Part 2 and other requirements of NI 81-102.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 2.5(2)(a) and (c), 19.1.
June 15, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF INVESCO CANADA LTD. (the "Filer") AND IN THE MATTER OF THE INTACTIVE FUNDS (defined below)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Invesco Intactive Diversified Income Portfolio, Invesco Intactive Diversified Income Portfolio Class, Invesco Intactive Balanced Income Portfolio, Invesco Intactive Balanced Income Portfolio Class, Invesco Intactive Balanced Growth Portfolio, Invesco Intactive Balanced Growth Portfolio Class, Invesco Intactive Growth Portfolio, Invesco Intactive Growth Portfolio Class, Invesco Intactive Maximum Growth Portfolio, Invesco Intactive Maximum Growth Portfolio Class, Invesco Intactive 2023 Portfolio, Invesco Intactive 2028 Portfolio, Invesco Intactive 2033 Portfolio, Invesco Intactive 2038 Portfolio and any future funds managed by the Filer with similar investment objectives of the above funds (namely, global asset allocation funds that state that investing in other mutual funds is a fundamental investment objective) (the "Intactive Funds") for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for exemptive relief from the following provisions of National Instrument 81-102 -- Investment Funds ("NI 81-102"):
(i) paragraph 2.5(2)(a) that prohibits a mutual fund from investing in another mutual fund that is not subject to NI 81-102 and National Instrument 81-101 -- Mutual Fund Prospectus Disclosure ("NI 81-101"); and
(ii) paragraph 2.5(2)(c) that prohibits a mutual fund from investing in securities of another mutual that is not qualified for distribution in the local jurisdiction,
in order to permit each Intactive Fund to invest up to 10% of its net assets, taken at market value at the time of investment, in securities of Invesco Select Emerging Markets Pool (the "EM Pool") (collectively, the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.
Defined terms contained in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.
This Decision is based on the following facts represented by the Filer on behalf of the Intactive Funds:
1. The Filer:
a. is a corporation amalgamated under the laws of Ontario;
b. is an indirect wholly-owned subsidiary of Invesco Ltd., a global investment manager;
c. has its head office in Toronto, Ontario;
d. is registered as an investment fund manager in Ontario, Québec and Newfoundland and Labrador and is the investment fund manager of the Intactive Funds and the EM Pool; and
e. is registered as a portfolio manager in all the provinces of Canada and is the portfolio manager of the Intactive Funds and the EM Pool;
f. is not in default of applicable securities legislation in any jurisdiction.
2. The Intactive Funds:
a. are open-end mutual funds established under the laws of Ontario;
b. comply with NI 81-102;
c. have a simplified prospectus and annual information form prepared in accordance with NI 81-101;
d. are reporting issuers under the securities laws of each of the provinces and territories of Canada;
e. are qualified for distribution in all provinces and territories of Canada; and
f. are not in default of securities legislation in any province or territory of Canada.
3. Each Intactive Fund is a fund-of-funds that seeks to achieve a particular return profile over a certain period of time (either a total return generated until a horizon date or long-term capital appreciation) by (a) directly or indirectly investing in a diversified mix of other mutual funds, and (b) utilizing a proprietary dynamic asset allocation strategy in respect of those mutual funds. The Intactive Funds are sub-advised by Invesco Advisers, Inc., and invest mainly in securities of other investment funds managed by the Filer or its affiliates, including mutual funds governed by NI 81-102 and exchange traded funds that seek to track the performance of market indices, gold, silver and other commodities.
4. The EM Pool:
a. is an open-ended pooled fund created on May 12, 2014 under a Declaration of Trust, which was amended and restated on August 22, 2014;
b. is available for purchase only by institutional investors who meet the definition of an "accredited investor" as set forth in National Instrument 45-106 -- Prospectus and Registration Exemptions, including other mutual funds managed by the Filer;
c. has not issued a simplified prospectus and annual information form prepared in accordance with 81-101;
d. is not subject to NI 81-102;
e. is subject to the applicable provisions of NI 81-106 Investment Fund Continuous Disclosure ("NI 81-106");
f. is not a reporting issuer in any of the provinces or territories of Canada;
g. is sub-advised by Invesco Advisers, Inc., for the cash portion only;
h. is a mutual fund in Ontario as defined in the Securities Act (Ontario); and
i. is not in default of applicable securities legislation in any in any province or territory of Canada.
5. The investment objective of the EM Pool is to seek to achieve capital growth over the long term by investing substantially all of its assets in equity securities of companies located in emerging market countries and frontier markets, which generally have less developed capital markets than emerging markets. There are also limits to how much cash the EM Pool may hold.
6. An investment in the EM Pool is compatible with the investment objectives and strategies of the Intactive Funds, which invest in a blend of actively and passively managed mutual funds, including exchange-traded funds. Each Intactive Fund is a global portfolio with contributions from all of the major markets including Canada, U.S., Europe, Asia and emerging markets.
7. While it may be possible for the Filer to gain exposure to emerging market equities by investing in other mandates, it is in the best interests of the Intactive Funds to have the ability to invest in units of the EM Pool. This is because the alternatives available to the Filer are not optimal relative to investing in the EM Pool.
8. The EM Pool does not utilize leverage, does not short sell and complies generally with the investment and derivative requirements set out in NI 81-102. The EM Pool will also comply with the restrictions relating to illiquid securities (section 2.4 of NI 81-102) and investments in other Investment Funds (section 2.5 of NI 81-102) for so long as it is held by one of the Intactive Funds.
9. Securities of the EM Pool are valued and redeemable on the same dates as securities of the Intactive Funds.
10. Each Intactive Fund will invest no more than 10% of its net assets in units of the EM Pool.
11. The Independent Review Committee of the Intactive Funds will oversee the purchase of the EM Pool pursuant to National Instrument 81-107 -- Independent Review Committee for Investment Funds;
12. The Intactive Funds will otherwise comply fully with section 2.5 of NI 81-102 in its investment in the EM Pool and will provide all applicable disclosure mandated for mutual funds investing in other mutual funds.
13. Where applicable, an Intactive Fund's investment in the EM Pool will be disclosed to investors in that Intactive Fund's quarterly portfolio holding reports, financial statements and/or fund facts document.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) The EM Pool complies with Parts 2, 4 and 6 of NI 81-102 and Part 14 of NI 81-106 for so long as it is held by one of the Intactive Funds;
(b) The prospectus of the Intactive Funds will disclose that they may invest in the EM Pool, which is a pooled fund managed by the Filer; and
(c) An Intactive Fund will not invest in the EM Pool if, immediately after the investment, more than 10% of its net assets, in aggregate, taken at market value at the time of the investment, would consist of investments in the EM Pool.