National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from s. 2.5 of NI 81-102 -- relief sought for mutual fund to invest in underlying mutual fund that is not distributed by prospectus in Canada -- underlying fund is EU qualified SICAV managed by affiliate of fund's portfolio sub adviser- underlying fund's portfolio and strategies relatively unique in Canada -- top fund's investment will be de minimis -- rules governing investments by SICAVs substantially similar to NI 81-102 -- top fund to divest holdings if SICAV rules materially change.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.5(2)(a) and (c), 19.1.
January 2, 2014
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
SUN LIFE GLOBAL INVESTMENTS (CANADA) INC.
IN THE MATTER OF
SUN LIFE SCHRODER EMERGING MARKETS FUND
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Fund from sections 2.5(2)(a) and 2.5(2)(c) of National Instrument 81-102 Mutual Funds (NI 81-102) to permit the Fund to invest in securities of Schroder International Selection Fund Frontier Markets Equity (the Underlying Fund) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(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 each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).
Terms defined in MI 11-102 and National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Canada with its head office in Toronto, Ontario.
2. The Filer is registered as: (i) an investment fund manager in Ontario, Quebec and Newfoundland and Labrador; (ii) a portfolio manager in Ontario; (iii) a mutual fund dealer in each of the Jurisdictions; and (iv) a commodity trading manager in Ontario.
3. The Filer acts as manager and portfolio manager of the Fund.
4. Neither the Filer nor the Fund are in default of securities legislation in any of the Jurisdictions.
5. The Fund is an open-end mutual fund trust established under the laws of the province of Ontario.
6. The Fund is a reporting issuer in each of the provinces and territories in Canada and is subject to NI 81-102.
7. The securities of the Fund are currently qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts dated August 29, 2013, that were prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101).
8. The investment objective of the Fund is to seek capital appreciation by investing primarily in equity securities of companies with a connection to emerging markets.
9. Schroder Investment Management North America Inc. is the sub-adviser of the Fund (the Sub-Adviser).
10. To achieve the Fund's investment objectives, the Filer has determined that it would be in the best interests of the Fund if the Fund has the ability to invest up to 10% of its net asset value in securities of the Underlying Fund, which is a sub-fund of Schroder International Selection Fund (SISF).
11. SISF is an open-ended investment company that qualifies as a Société d'Investissment à Capital Variable (SICAV) governed by the laws of Luxembourg. SISF complies with 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 (the EU Directives).
12. Securities of the Underlying Fund are distributed in certain European countries pursuant to the EU Directives. The Underlying Fund has issued a prospectus which contains disclosure pertaining to the Underlying Fund and SISF.
13. The management company and investment manager of the Underlying Fund are Schroder Investment Management (Luxembourg) S.A. and Schroder Investment Management Limited, respectively, both of which are affiliates of the Sub-Adviser. The investment objective of the Underlying Fund is to provide capital growth primarily through investment in equity and equity related securities of "frontier markets" companies. Frontier markets are countries included in the MSCI Frontier Markets Index or any other recognized frontier markets financial index and are considered a subset of emerging market countries.
14. The Underlying Fund is subject to investment restrictions and practices under the laws of the European Union that are applicable to mutual funds that are sold to the general public and that are consistent with similar restrictions and practices applicable to mutual funds under NI 81-102. The Underlying Fund is not generally considered to be a hedge fund and it is not an "index mutual fund" as that term is defined in NI 81-102.
15. The Underlying Fund does not invest more than 10% of its net asset value in other investment funds.
16. Section 2.5(2) of NI 81-102 would permit the Fund to invest in the Underlying Fund but for the fact that the Underlying Fund is not subject to NI 81-101 and NI 81-102 and does not (or has not) distributed its securities in Canada under a simplified prospectus.
17. The Filer believes that it is in the best interests of the Fund to be permitted to invest in the Underlying Fund as such investment will allow the Fund to gain exposure to certain securities in frontier markets in an economically viable way compared to direct investment in such securities.
18. The Fund will otherwise comply with Section 2.5 of NI 81-102 in investing in the Underlying Fund and will provide all mandatory disclosure for mutual funds investing in other mutual funds.
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 Underlying Fund qualifies as a UCITS and is distributed in accordance with the EU Directives, which subject the Underlying Fund to investment restrictions and practices that are substantially similar to those that govern the Fund;
(b) The investment of the Fund in the Underlying Fund otherwise complies with section 2.5 of NI 81-102 and the Fund provides the disclosure required for fund-of-fund investments in NI 81-101. Specifically, the investment by the Fund in the Underlying Fund is disclosed in its simplified prospectus;
(c) The Fund will not purchase securities of the Underlying Fund if, immediately after the purchase, more than 10 per cent of its net asset value would consist of investments in the Underlying Fund; and
(d) The Fund shall not acquire any additional securities of the Underlying Fund and shall dispose of the securities of the Underlying Fund then held in an orderly and prudent manner, after the date that the laws applicable to the Underlying 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.