Invesco Canada Ltd. and Invesco Intactive Strategic Yield Portfolio
Headnote
NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from requirements contained in paragraphs 2.5(2)(a) and 2.5(2)(c) of National Instrument 81-102 Mutual Funds -- Top Funds permitted to invest up to 10% of net assets, in aggregate, in securities of mutual funds governed by the laws of Luxembourg or the Republic of Ireland that are sub-funds of an affiliate and managed by the same manager -- Relief subject to certain conditions -- Top Funds are required to divest if laws applicable to Luxembourg or Irish mutual funds cease to be materially consistent with Part 2 of NI 81-102.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.5(2)(a), 2.5(2)(c), 19.1.
March 30, 2012
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
INVESCO INTACTIVE STRATEGIC
YIELD PORTFOLIO
("Strategic Portfolio")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for exemptive relief (the "Exemption Sought") for Strategic Portfolio from the following provisions of National Instrument 81-102 -- Mutual Funds ("NI 81-102"):
(i) subsection 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) subsection 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.
Paragraphs (i) through (iii) are collectively referred to as 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.
Interpretation
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.
Representations
This Decision is based on the following facts represented by the Filer on behalf of the Strategic Portfolio:
Facts
1. The head office of the Filer is located in Toronto, Ontario.
2. The Filer is or will be the manager of the Strategic Portfolio.
3. The Filer is an indirect wholly-owned subsidiary of Invesco Ltd.
4. The Filer is not in default of securities legislation in any province or territory of Canada.
5. The Strategic Portfolio will:
(a) be an open-end mutual fund 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 and NI 81-102;
(d) be a reporting issuer under the securities laws of each of the provinces and territories of Canada;
(e) be qualified for distribution in all provinces and territories of Canada; and
(f) not be in default of securities legislation in any province or territory of Canada.
4. A preliminary simplified prospectus and annual information form dated February 23, 2012 for Strategic Portfolio was filed in all provinces and territories of Canada under SEDAR project #01862627.
5. Invesco Management S.A. ("IMSA"), the manager of Invesco Funds, SICAV ("IFS"), is a wholly-owned indirect subsidiary of Invesco Ltd. and as of October 31, 2011, IMSA managed approximately US$14.574 billion.
6. IFS is an open-ended investment company that qualifies as a Société d'Investissment à Capital Variable governed by the laws of Luxembourg. IFS is registered as an undertaking for collective investment in transferable securities ("UCIT") under the EU Council Directive 2009/65/EC of 13 July 2009 on the Coordination of Laws, Regulations and Administrative Provisions relating to Undertakings for Collective Investment in Transferable Securities (UCITS), as amended.
7. The Invesco Emerging Market Corporate Bond Fund (the "EM Corporate Fund") is a sub-fund of IFS that is distributed in certain European countries pursuant to the EU Directives. The EM Corporate Fund has also issued a prospectus and a simplified prospectus which contains disclosure pertaining to the fund, IFS and IMSA.
8. Invesco Global Asset Management Limited ("IGAML"), the manager of Invesco Series 2 ("IS2"), is a wholly-owned indirect subsidiary of Invesco Ltd. and as of October 31, 2011, IGAML managed approximately US$7.1 billion.
9. IS2 is an opened-ended umbrella fund constituted as a unit trust under trust deed in Ireland. IS2 is authorized by The Central Bank of Ireland as a UCIT under The European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 (as amended) of Ireland (together with the EU Council Directive 2009/65/EC of 13 July 2009, the "EU Directives").
10. The Invesco Emerging Markets Bond Fund ("EM Bond Fund") is a sub-fund of IS2 that is distributed in certain European countries pursuant to the EU Directives. The EM Bond Fund has also issued a prospectus and a simplified prospectus which contains disclosure pertaining to the fund, IS2 and IGAML.
11. Each of the EM Corporate Fund and EM Bond Fund (collectively, the "EM Funds") is subject to investment restrictions and practices that are substantially similar to those applicable to the Strategic Portfolio. The EM Funds are available for purchase by the public and are generally not considered hedge funds.
12. Strategic Portfolio will be a fund-of-funds that mainly invests in securities of issuers that are corporations, government or investment funds, including mutual funds governed by NI 81-102 and exchange traded funds ("ETFs") that seek to track the performance of market indices, gold and/or silver.
13. The investment objective of Strategic Portfolio is to seek to generate a high level of income with the potential for capital appreciation. The Fund invests in a diversified portfolio of mutual funds that are managed by the Manager or one of its affiliates or associates and one or more Invesco PowerShares ETFs or ETFs which may be managed by a third party. The Fund will invest primarily in underlying funds and ETFs that invest in fixed income securities and/or dividend-paying securities.
14. The investment objectives of EM Corporate Fund is to achieve a high income yield and long-term capital appreciation by investing primarily in debt securities of emerging market corporate issuers.
15. The investment objectives of EM Bond Fund is to achieve a high income yield and long-term capital appreciation by investing in debt securities and loan instruments of issuers in emerging market countries.
16. Neither of the EM Funds invest more than 10% of their net assets in other investment funds.
17. Sections 2.1(2) and 2.5(2) of NI 81-102 would permit the Strategic Portfolio to invest in the EM Funds but for the fact that the EM Funds are not subject to NI 81-101 and NI 81-102 and are not distributed in Canada under a simplified prospectus.
18. The Filer believes that it is in the best interests of the Strategic Portfolio that it be permitted to invest in the EM Funds as such investments will allow the Strategic Portfolio to achieve greater diversification in an economically viable way.
19. While it may be possible for the Filer to:
a) qualify funds similar to the EM Funds in Canada, it is not, at this point desirable, to do so as, in the Filer's opinion, the market for funds similar to the EM Funds in Canada is not sufficiently large such that the fund will be economically viable; and
b) invest directly in the securities in which the EM Fund invests, it is not, at this point, desirable to do so as given the Strategic Portfolio's limited investment in the Strategic Portfolio, it would be more economical from a trading costs and liquidity perspective to invest in securities of the EM Funds than directly in debt securities of emerging market companies.
20. The Strategic Portfolio will otherwise comply fully with section 2.5 of NI 81-102 in its investment in the EM Funds and will provide all disclosure mandated for mutual funds investing in other mutual funds.
Decision
The principal regulator is satisfied that the test contained in the Legislation that provides the principal regulator with the jurisdiction to make the decision has been met.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
a) The EM Funds qualify as UCITs and are distributed in accordance with the EU Directives, which subject the EM Funds to investment restrictions and practices that are substantially similar to those that govern the Strategic Portfolio;
b The investment of the Strategic Portfolio in the EM Funds otherwise complies with section 2.5 of NI 81-102 and the Strategic Portfolio provides the disclosure contemplated for fund-of-fund investments in NI 81-101. Specifically, the investment by the Strategic Portfolio in the EM Funds is disclosed in its simplified prospectus;
c) The Strategic Portfolio will not invest in the EM Funds 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 Funds;
d) The Strategic Portfolio shall not acquire any additional securities of an EM Fund and shall dispose of the securities of an EM Fund then held in an orderly and prudent manner, after the date that an EM Fund engages in any of the following investment strategies:
(i) purchases partly paid or nil paid securities; and
(ii) engages in leveraging any assets in its portfolio that is inconsistent with NI 81-102.
e) The Strategic Portfolio shall not acquire any additional securities of an EM Fund and shall dispose of the securities of an EM Fund then held in an orderly and prudent manner, after the date that the laws applicable to that EM Fund that are at the date of this decision substantially similar to Part 2 of NI 81-102, change to be materially inconsistent with Part 2 of NI 81-102.