Canoe Financial LP

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from paragraphs 2.3(f) and (h), 2.5(2)(a), (b) and (c) of National Instrument 81-102 Mutual Funds to permit mutual funds to invest in gold ETFs, silver ETFs, gold/silver ETFs and silver, subject to certain conditions, including a 10% limit on aggregate direct and indirect exposure to gold and silver.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.3(f) and (h), 2.5(2) (a), (b) and (c), 19.

Citation: Canoe Financial LP , Re, 2011 ABASC 96

February 17, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

CANOE FINANCIAL LP

(the Filer)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision on behalf of the mutual funds listed on Appendix A attached hereto (each, a Prelim Fund and collectively, the Prelim Funds) and any future mutual funds to be managed by the Filer that will be subject to National Instrument 81-102 Mutual Funds (NI 81-102) (the Future Funds, and together with the Prelim Funds, the Funds and individually, a Fund) under the securities legislation of the Jurisdictions (the Legislation) for a decision exempting the Funds 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 (the Exemption Sought) to permit each Fund to purchase and hold or enter into:

(a) securities of exchange-traded funds (ETFs) that seek to replicate (i) the performance of gold on an unlevered basis; or (ii) the value of a specified derivative the underlying interest of which is gold on an unlevered basis (Gold ETFs);

(b) securities of ETFs that seek to replicate (i) the performance of silver on an unlevered basis; or (ii) the value of a specified derivative the underlying interest of which is silver on an unlevered basis (Silver ETFs);

(c) securities of ETFs that seek to replicate (i) the performance of gold and silver on an unlevered basis; or (ii) the value of specified derivatives the underlying interests of which are gold and silver on an unlevered basis (Gold/Silver ETFs); and

(d) silver, Permitted Silver Certificates (as defined below) and specified derivatives the underlying interest of which is silver on an unlevered basis (collectively, Silver).

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

(a) the Alberta Securities Commission is the principal regulator for this application;

(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 by the Filer in each of the provinces and territories of Canada other than Ontario; and

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

Interpretation

Terms defined in National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

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

1. The Filer is a limited partnership established under the laws of the Province of Alberta having its registered head office in Calgary, Alberta. The general partner of the Filer is Canoe Financial Corp., a corporation incorporated under the laws of the Province of Alberta. The Filer is registered as an investment fund manager and portfolio manager with the Alberta Securities Commission.

2. The Prelim Funds are each a class of special shares of Canoe 'GO CANADA!' Fund Corp., a mutual fund corporation incorporated under the laws of the Province of Alberta. All the Funds will either be a class of shares of a mutual fund corporation or a mutual fund trust established under the laws of a jurisdiction in Canada.

3. The Filer is the manager and portfolio manager for each of the Prelim Funds and will be the manager and portfolio manager of each of the Future Funds.

4. A simplified prospectus in respect of the Prelim Funds was filed and a receipt obtained on February 14, 2011. As a result, each Prelim Fund is a "reporting issuer" or equivalent in each province and territory of Canada.

5. Each Fund will be qualified for distribution in each of the provinces and territories of Canada under a simplified prospectus and annual information form. The Funds will be reporting issuers in each of the provinces and territories of Canada.

6. Neither the Filer nor any of the Prelim Funds is in default of any requirements of securities legislation in any jurisdiction.

7. Each Fund that relies on the Exemption Sought will be permitted in accordance with its investment objectives and investment strategies to invest in Gold ETFs, Silver ETFs and Gold/Silver ETFs (collectively, Underlying ETFs) and Silver.

8. The Funds do not invest in leveraged ETFs or inverse ETFs.

9. In the absence of the Exemption Sought, an investment by the Funds in securities of the Underlying ETFs would be contrary to section 2.5(2)(a) of NI 81-102 as the securities of the Underlying ETFs will not be subject to NI 81-102 and NI 81-101.

10. In the absence of the Exemption Sought, an investment by the Funds in securities of some Underlying ETFs would be contrary to section 2.5(2)(b) of NI 81-102 as some Underlying ETFs invest in a fund which does not comply with the requirements of section 2.5 of NI 81-102. This fund in turn invests in gold, silver or derivatives the underlying interest of which is gold, silver or a combination thereof.

11. In the absence of the Exemption Sought, an investment by the Funds in securities of some Underlying ETFs would be contrary to section 2.5(2)(c) of NI 81-102 as the securities of some Underlying ETFs are not qualified for distribution in Canada.

12. To obtain exposure to gold or silver indirectly, the Filer may use specified derivatives the underlying interest of which is gold or silver and invest in the Underlying ETFs.

13. The markets for gold/silver are highly liquid, and there are no liquidity concerns that should lead to a conclusion that investments in gold/silver need to be prohibited.

14. The Funds may invest in Silver from time to time when the Filer determines that it is desirable to do so following a valuation of assets, a determination of the effect of monetary policy and economic environment on asset prices, and assessing historic price movements on likely future returns.

15. In this decision, silver certificates (Permitted Silver Certificates) that the Funds invest in will be certificates that represent silver that is:

(a) available for delivery in Canada, free of charge, to or to the order of the holder of the certificate;

(b) of a minimum fineness of 999 parts per 1,000;

(c) held in Canada;

(d) in the form of either bars or wafers; and

(e) if not purchased from a bank listed in Schedule I, II or III of the Bank Act (Canada), fully insured against loss and bankruptcy by an insurance company licensed under the laws of Canada or a province or territory of Canada.

16. In the absence of the Exemption Sought, an investment by the Funds in Silver would be contrary to sections 2.3(f) and 2.3(h) of NI 81-102 as those sections only stipulate gold as a permissible commodity to be held directly or as an underlying interest of a specified derivative.

17. The Underlying ETFs and Silver are attractive investments for the Funds as they provide an efficient and cost effective means of achieving diversification in addition to any investment in gold.

18. An investment by a Fund in the securities of the Underlying ETFs and/or Silver represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Fund.

19. Any investment by a Fund in Silver will be held under the custodianship of one custodian that satisfies the requirements of Part 6 of NI 81-102.

20. If the investment in gold and/or silver (including gold, permitted gold certificates, silver, Permitted Silver Certificates, Underlying ETFs and specified derivatives the underlying interest of which is gold or silver) represents a material change for any Existing Fund, the Filer will comply with the material change reporting obligations for that Fund.

21. The simplified prospectus for each Fund that invests or intends to invest in Underlying ETFs and Silver will disclose:

(a) in the investment strategy section of the Fund the fact that the Fund has obtained relief to invest in securities of Underlying ETFs and Silver together with an explanation of what each Underlying ETF is; and

(b) the risk associated with the Fund's investment in securities of the Underlying ETFs and/or Silver.

Decision

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

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:

(a) the investment by a Fund in securities of an Underlying ETF and/or Silver is in accordance with the fundamental investment objectives of the Fund;

(b) a Fund does not short sell securities of an Underlying ETF;

(c) the securities of the Underlying ETFs are traded on a stock exchange in Canada or the United States;

(d) the securities of the Underlying ETFs are treated as specified derivatives for purposes of Part 2 of NI 81-102; and

(e) a Fund does not purchase gold, permitted gold certificates, silver, Permitted Silver Certificates, Underlying ETFs or enter into specified derivatives the underlying interest of which is gold or silver if, immediately after the transaction, more than 10% of the net assets of the Fund, taken at market value at the time of the transaction, would consist of gold, permitted gold certificates, silver, Permitted Silver Certificates, Underlying ETFs and underlying market exposure of specified derivatives linked to gold or silver.

"David C. Linder"
Executive Director

 

APPENDIX "A"

LIST OF PRELIM FUNDS

Canoe 'GO CANADA!' Canadian Asset Allocation Class
Canoe 'GO CANADA!' Canadian Equity Class