Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to permit corporate class funds to invest in underlying fund of funds -- Relief needed to facilitate creation of corporate class funds that seek to replicate performance of existing mutual fund trusts that invest in other funds -- Each corporate class to invest in one trust fund -- Investment objectives of corporate class will state the name of trust fund that it invests in -- fund of fund investing by corporate classes and trust funds will otherwise comply with section 2.5 of National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.5(2)(b), 19.1.

Citation: Re Canoe Financial L.P., 2015 ABASC 786

July 24, 2015

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 L.P. (the Filer) AND IN THE MATTER OF THE CLONE FUNDS (as defined below)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer on behalf of the Clone Funds for a decision under the securities legislation of the Jurisdictions (the Legislation) exempting each Clone Fund from paragraph 2.5(2)(b) of National Instrument 81-102 Investment Funds (NI 81-102) to permit each Clone Fund to purchase or hold securities of a Top Fund (as defined below), which Top Fund will hold (directly or indirectly) more than 10% of its net asset value in securities of one or more Underlying Funds (as defined below) (the Exemption Sought).

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 in British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan, and Yukon; and

(c) this 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 National Instrument 14-101 Definitions or MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

In this decision, the following additional terms have the following meanings:

Clone Fund means each existing or future mutual fund managed by the Filer that is, or will be, a class of a mutual fund corporation that has adopted a fundamental investment objective to track the performance of another mutual fund.

NI 81-101 means National Instrument 81-101 Mutual Fund Prospectus Disclosure.

Existing Clone Fund means each of Canoe Bond Advantage Class, Canoe Enhanced Income Class, Canoe Global Income Class, and Canoe Strategic High Yield Class.

Top Fund means each existing or future mutual fund managed by the Filer that is or will be formed as a trust, in which a Clone Fund may invest pursuant to this decision.

Underlying Fund means an existing or future mutual fund in which a Top Fund may invest from time to time in accordance with NI 81-102.

Representations

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

1. The Filer is a limited partnership established under the Partnership Act (Alberta) with its head office in Calgary, Alberta.

2. The Filer is registered as an exempt market dealer, a portfolio manager, and an investment fund manager in each of the provinces and territories of Canada.

3. The Filer acts, or will act, as manager of each Clone Fund and each Top Fund.

4. The Underlying Funds are, or will be, managed by one or more of the Filer, an affiliate of the Filer or other investment fund managers unrelated to the Filer.

5. Neither the Filer, any of the Existing Clone Funds nor any of the existing Top Funds are in default of securities legislation in any province or territory of Canada.

6. Each Existing Clone Fund is a class of a mutual fund corporation established under the laws of the Province of Alberta and each future Clone Fund will be a class of a mutual fund corporation established under the laws of one of the provinces or territories of Canada or under the laws of Canada. Each Existing Clone Fund is, and each future Clone Fund will be, a reporting issuer under the laws of one or more of the provinces or territories of Canada, subject to NI 81-102, except for any relief therefrom granted by an applicable regulator or securities regulatory authority.

7. Each existing Top Fund is an open-end mutual fund trust, established under the laws of the Province of Alberta and each future Top Fund will be an open end mutual fund trust established under the laws of one of the provinces or territories of Canada. Each existing Top Fund is, and each future Top Fund will be, a reporting issuer under the laws of one or more of the provinces or territories of Canada, subject to NI 81-102, except for any relief therefrom granted by an applicable regulator or securities regulatory authority.

8. The securities of each Clone Fund are, or will be, qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts that is or will be prepared and filed in accordance with NI 81-101. The securities of each Existing Clone Fund are qualified for distribution under a simplified prospectus, annual information form and Fund Facts dated July 21, 2014, as they may be amended from time to time (the Prospectus).

9. The securities of each Top Fund are, or will be, qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts that is or will be prepared and filed in accordance with NI 81-101. The securities of each existing Top Fund are qualified for distribution under the Prospectus.

10. Each Clone Fund seeks, or will seek, a return similar to the return of a Top Fund by investing all, or substantially all, of its assets in that Top Fund.

11. Each Top Fund may invest in one or more Underlying Funds and may also invest directly in any one or a combination of cash, bonds or other debt securities, fixed income securities, other income-producing securities or equity securities.

12. Each existing Underlying Fund is, and each future Underlying Fund will be, a reporting issuer under the laws of one or more of the provinces or territories of Canada, subject to NI 81-102, except for any relief therefrom granted by an applicable regulator or securities regulatory authority.

13. The securities of each Underlying Fund are, or will be, qualified for distribution pursuant to a simplified prospectus, annual information form and Fund Facts that is or will be prepared and filed in accordance with NI 81-101.

14. An investment by a Top Fund in securities of each Underlying Fund is, or will be, made in accordance with the provisions of section 2.5 of NI 81-102 (or pursuant to an exemption therefrom), including the prohibition that no Underlying Fund will hold more than 10% of its net asset value in securities of other investment funds unless otherwise permitted by NI 81-102.

15. Each Clone Fund is intended to provide investors with the same investment exposure as its corresponding Top Fund, with the added flexibility of being able to switch to another class of the same corporation on a tax-deferred basis.

16. The Filer has determined that it would be more efficient and less costly for each Clone Fund to invest in securities of its applicable Top Fund instead of investing directly in the securities in which the Top Fund invests.

17. An investment by a Clone Fund in units of its applicable Top Fund is, or will be, made in accordance with the provisions of section 2.5 of NI 81-102. However, the Filer has determined it would be in the best interests of each Top Fund to have the ability to invest more than 10% of its net asset value in securities of other investment funds, which would otherwise be prohibited by section 2.5(2)(b) of NI 81-102 because it would result in a multi-tier fund structure with respect to the Top Fund's investment in one or more Underlying Funds.

18. The name of each Existing Clone Fund includes and each future Clone Fund will include part of the name of its corresponding Top Fund.

19. The simplified prospectus of each Existing Clone Fund discloses:

(a) in the investment objectives section, the fact that the Clone Fund seeks to achieve a return similar to the return of a specific type of mutual fund managed by the Filer or by an affiliate or associate of the Filer;

(b) in the investment strategies section, the name of the applicable Top Fund in which the Clone Fund will invest; and

(c) in the investment strategies section, the investment strategies of the applicable Top Fund in which the Clone Fund will invest.

20. The Filer has confirmed that the underlying portfolio exposure of each Existing Clone Fund, following the implementation of the Exemption Sought, will be substantially similar to its current portfolio exposure.

21. The simplified prospectus of each future Clone Fund will disclose (i) in the investment objective section, the name of the applicable Top Fund in which the Clone Fund will invest and (ii) in the investment strategies section, the investment strategies of the Top Fund.

22. It will be clear to investors that accountability for portfolio management is at the level of the Top Fund in respect of the selection of Underlying Funds to be purchased by the Top Fund.

23. The simplified prospectus of each Existing Clone Fund and each existing Top Fund discloses and the simplified prospectus of each future Clone Fund and future Top Fund will disclose, that fees and expenses will not be duplicated as a result of investments in other investment funds.

24. The Exemption Sought, which would permit a Clone Fund to invest directly in a Top Fund, which invests (directly or indirectly) in one or more Underlying Funds, will be akin to, and no more complex than, the three-tier structure currently permitted under section 2.5(4)(a) of NI 81-102.

25. Each Clone Fund complies or will comply with the requirements under National Instrument 81-106 Investment Fund Continuous Disclosure 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 Document relating to top 10 positions portfolio holdings disclosure in its Fund Facts as if the Clone Fund were investing directly in the portfolio of its applicable Top Fund.

26. An investment by a Clone Fund in its applicable Top Fund and by a Top Fund in the applicable Underlying Funds represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Clone Fund and of the Top Fund, respectively.

27. The Filer has determined that it would be in the best interests of each Clone Fund and not prejudicial to the public interest to receive 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 in respect of a Clone Fund provided that, by the date the Clone Fund needs to rely on the Exemption Sought and on an ongoing basis thereafter, the Clone Fund will be in compliance with each of the following conditions:

(a) the investment of the Clone Fund in a Top Fund otherwise complies with section 2.5 of NI 81-102; and

(b) the investment objectives of the Clone Fund, as stated in the simplified prospectus and in the information under the section "What does the fund invest in?" in the Fund Facts of the Clone Fund, states the name of the Top Fund.

"Tom Graham, CA"
Director, Corporate Finance