Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemption granted from the requirements of paragraphs 2.2(1)(a), 2.5(2)(a), and 2.5(2)(c) of National Instrument 81-102 to allow top NI 81-102 mutual fund to invest up to 10% of its assets in bottom pooled fund. Exemption granted on the basis that bottom fund will comply with Part 2 of NI 81-102 and 10% concentration restriction.
Applicable Legislative Provisions
National Instrument 81-102 – Mutual Funds, ss. 2.2(1)(a), 2.5(2)(a), and 2.5(2)(c), s. 19.1.
September 3, 2010
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
INTEGRA BALANCED FUND
(the Filer)
AND
IN THE MATTER OF
INTEGRA CAPITAL LIMITED
(Integra)
Background
The principal regulator in the Jurisdiction has received an application from Integra, on behalf of the Filer, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for exemptive relief (the Requested Relief) from paragraphs 2.2(1)(a), 2.5(2)(a) and (c) of National Instrument 81 - 102 - Mutual Funds (NI 81-102) to permit the Filer to invest up to 7.5% of its net assets in units of Integra Emerging Markets Equity Fund (the Underlying Fund).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application),
(a) the Ontario Securities Commission (the 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador (the Passport Non-Principal Jurisdictions).
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 Integra on behalf of the Filer:
Integra is a corporation incorporated under the laws of Ontario and has its head office in the City of Oakville. Integra is the trustee, manager and investment manager of the Filer and the Underlying Fund.
Integra is registered as a Portfolio Manager in the Jurisdictions, as a commodity trading manager in Ontario and as an exempt market dealer in Ontario and Newfoundland and Labrador.
Each of the Filer and the Underlying Fund is an open-end mutual fund established under the laws of Ontario.
The Filer is a reporting issuer under the securities laws of each of the provinces of Canada (the Jurisdictions).
The Underlying Fund is not, and has no intention of becoming, a reporting issuer in any of the Jurisdictions.
As a mutual fund in Ontario, the Underlying Fund is subject to aspects of securities legislation.
None of Integra, the Filer or the Underlying Fund is in default of any requirements of applicable securities legislation in any of the Jurisdictions.
The investment objective of the Filer is:
to generate both capital appreciation (growth) and income, while maintaining a relatively low level of risk.
To achieve its objectives, the Filer invests in or has exposure to a diverse portfolio of stocks, mutual funds, government and corporate bonds, and short-term instruments such as Government of Canada treasury bills. The Filer may hold up to an aggregate of 10% in cash or cash equivalents.
Currently, the investment strategy of the Filer is to invest in the securities of other mutual funds.
The investment objective of the Underlying Fund is:
to provide long-term capital growth through a portfolio of emerging market equities which are sufficiently diversified to reduce some of the investment risk inherent in investing in emerging market countries - which can be potentially volatile. To achieve its objective, the Underlying Fund invests in a diverse portfolio of equities primarily issued by companies in emerging or developing countries. The Underlying Fund may hold up to an aggregate of 10% in cash or cash equivalents.
Integra will retain the services of Principal Global Investors LLC as portfolio manager of the Underlying Fund.
The Underlying Fund seeks to achieve its objective by investing in equity securities of companies in emerging market countries. The term “emerging market country” means any country which is considered to be an emerging country by the international financial community (including the International Bank for Reconstruction and Development -also known as the World Bank -) and the International Financial Corporation) as well as all constituent countries within the MSCI Emerging Markets Index. These countries generally include every nation in the world except the United States, Canada, Japan, Australia, New Zealand and most nations of Western Europe.
The Underlying Fund will generally invest in securities of:
(a) companies with their principal place of business or principal office in emerging market countries;
(b) companies for which the principal securities trading market is an emerging market country; or
(c) companies, regardless of where their securities are traded, that derive 50% or more of their total revenue from either goods or services produced in emerging market countries or sales made in emerging market countries.
There are compatible dates for the calculation of the net asset value of the Fund and the Underlying Fund for the purpose of the issue and redemption of the units of such mutual funds.
The Filer will disclose in the investment strategies section of its simplified prospectus (the Prospectus) the ability to invest in other mutual funds, including the Underlying Fund which is a pooled fund managed by Integra.
The Filer will not invest more than 5% of its net assets in the Underlying Fund subject to a permitted deviation of 2.5% above the target weighting as a result of market fluctuations.
There will be no duplication of management fees or incentive fees since no management fees or incentive fees are payable by the Filer in respect of its investment in the Underlying Fund.
Where a matter relating to the Underlying Fund requires a vote of unitholders of the Underlying Fund at a meeting of unitholders, Integra will not cause the units of the Underlying Fund held by the Filer to be voted at such meeting except that the Filer may, if Integra so chooses, arrange for all units it holds of the Underlying Fund be voted by the beneficial holders of units of the Filer.
Other investors in the Underlying Fund will include Integra Diversified Fund, a pooled fund for which Integra is the trustee, manager and investment manager.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulators to make the decision.
The decision of the principal regulator under the Legislation is that the Requested Relief is granted provided that:
(a) the Underlying Fund will comply with the provisions of Parts 2, 4 and 6 of N1 81-102 at all times;
(b) the Prospectus will disclose that the Filer may invest in other mutual funds including the Underlying Fund, which is a pooled fund managed by Integra; and
(c) the Filer will not purchase securities of the Underlying Fund if, immediately after the purchase, more than 7.5% of its net assets taken at market value taken at the time of the purchase would consist of investments in the Underlying Fund.
“Vera Nunes”
______________________________
Vera Nunes
Assistant Manager, Investment Funds
Ontario Securities Commission
SEDAR Project No. 1604770