Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from multi-layering prohibition to permit mutual funds to invest in securities of a two-tier fund structure that invests more than 10% of the market value of its net assets in another specified underlying fund – Two-tier fund structure having investment objective that is substantially the same as that of the specified underlying fund, except that two-tier fund’s objective includes seeking to reduce its foreign currency exposure through the use of derivative contracts – National Instrument 81-102 Mutual Funds,paragraph 2.5(2)(b).
Applicable Legislative Provisions National Instrument 81-102 Mutual Funds, ss. 2.5, 2.5(2)(b) and 19.1.
December 13, 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 CIBC Asset Management Inc.
(the “Filer”)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on its behalf and on behalf of the mutual funds listed in Schedule A and other mutual funds that are or will be managed by the Filer (collectively, the “Portfolios”) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) exempting the Portfolios from the restriction contained in clause 2.5(2)(b) of National Instrument 81-102 Mutual Funds (“NI 81-102”) that a fund not invest in another fund if the other fund holds more than 10% of the market value of its net assets in securities of other mutual funds (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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
“CAMI Currency Neutral Funds” means Renaissance International Equity Currency Neutral Fund, Renaissance U.S. Equity Currency Neutral Fund, Renaissance Global Growth Currency Neutral Fund, Renaissance Global Focus Currency Neutral Fund, Renaissance Global Infrastructure Currency Neutral Fund, Renaissance Global Real Estate Currency Neutral Fund and such other CAMI Currency Neutral Funds that are reporting issuers and managed by CAMI from time to time.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the laws of Canada and is, or will be, the manager and trustee of each of the Portfolios. The head office of the Filer is in Ontario. The Filer is not in default of securities legislation in any Jurisdiction.
The Portfolios are, or will be, open-end mutual fund trusts established under the laws of the Province of Ontario.
Each of the Portfolios is, or will be, a reporting issuer under the securities laws of each of the Jurisdictions. None of the currently existing Portfolios is in default in any of the Jurisdictions of any requirements of applicable securities legislation.
To achieve their respective investment objectives, the Portfolios invest primarily in securities of other mutual funds, which may include other mutual funds managed by the Filer. The Portfolios may have exposure to foreign securities to an extent that will vary from time to time and may be up to 100% of the net assets of certain of the Portfolios.
The Filer would like the flexibility to hedge away some or all of the foreign currency exposure in the Portfolios, particularly where those Portfolios increase their foreign property exposure. The Filer proposes that an efficient and cost effective way to accomplish this would be to have the Portfolios invest in units of one or more of the CAMI Currency Neutral Funds.
A CAMI Currency Neutral Fund, as referenced in this decision, is or will be a CAMI mutual fund whose:
a. investment objective includes seeking to reduce its foreign currency exposure; and
b. investment strategy is to seek to achieve its investment objective primarily through investing in units of an underlying fund (in each case, an “Underlying Fund”) and through the use of derivative contracts that are aimed at protecting the CAMI Currency Neutral Fund from foreign currency fluctuations in respect of units it owns in the Underlying Fund.
The investment objectives of a CAMI Currency Neutral Fund and the applicable Underlying Fund are substantially the same, except that the objective of the CAMI Currency Neutral Fund includes the objective to reduce its foreign currency exposure.
Each CAMI Currency Neutral Fund is or, in the case of such funds created or reorganized after the date hereof, will be, an open-end mutual fund established under the laws of Ontario and a reporting issuer under the securities laws of each of the Jurisdictions. None of the currently existing CAMI Currency Neutral Funds is in default of any requirements of applicable securities legislation.
The CAMI Currency Neutral Funds are attractive investments for the Portfolios because effectively they offer investors the opportunity to invest in the foreign markets without having to separately manage and hedge continuously their currency exposure to those markets. The CAMI Currency Neutral Funds are able to efficiently hedge their varying foreign currency exposure on a much more efficient and cost effective basis than individual investors.
Each Underlying Fund is an open-end mutual fund established under the laws of Ontario and is a reporting issuer under the securities laws of each of the Jurisdictions. None of the currently existing Underlying Funds is in default of any requirements of applicable securities legislation.
An investment by the Portfolios in units of the CAMI Currency Neutral Funds will in each case be made in accordance with the provisions of section 2.5 of NI 81-102, except for the requirement in paragraph 2.5(2)(b) that a fund not invest in another fund if the other fund holds more than 10% of the market value of its net assets in securities on other mutual funds. There will accordingly be no duplication of fees between each tier of the three-tier fund structure.
A Portfolio’s investment in units of the CAMI Currency Neutral Funds will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Portfolio.
The three-tier fund structure that will result from a Portfolio’s investment in securities of the CAMI Currency Neutral Fund will be akin to, and no more complex than, the three-tier fund structure currently permitted under paragraph 2.5(4)(a) of NI 81-102.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make a decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted to allow the Portfolios to invest in securities of the CAMI Currency Neutral Funds, provided that such investments are made in compliance with each provision of section 2.5 of NI 81-102, except for paragraph 2.5(2)(b).
“Darren McKall”
Darren McKall
Assistant Manager, Investment Funds Branch
Ontario Securities Commission
SEDAR NO. 1664315
SCHEDULE A
Renaissance Optimal Income Portfolio
Axiom Balanced Income Portfolio
Axiom Diversified Monthly Income Portfolio
Axiom Balanced Growth Portfolio
Axiom Long-Term Growth Portfolio
Axiom Canadian Growth Portfolio
Axiom Global Growth Portfolio
Axiom Foreign Growth Portfolio
Axiom All Equity Portfolio