Invesco Canada Ltd. (Re), 2012 CanLII 72124

Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions - Relief granted from s. 13.5(2)(b) of NI 31-103 based on exceptionally unique factual circumstances to permit portfolio manager to purchase illiquid securities from mutual fund to reduce risk of over-concentration - Relief subject to conditions including IRC approval and objective pricing

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements and Exemptions – ss. 13.5, 15.1

November 15, 2012

(the Jurisdiction)

AND

(the Filer)

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the principal regulator (the “Legislation”) pursuant to section 15.1 of National Instrument 31-103 Registration Requirements and Exemptions (“NI 31-103”), exempting the Filer from the prohibition contained in subsection 13.5(2)(b) of NI 31-103 that prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of a responsible person, an associate of a responsible person or an investment fund for which a responsible person acts as an adviser to permit the Filer or ICHI to purchase the Indian Securities from the 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;

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 they are defined in this decision. The following additional terms shall have the following meanings:

“FII” means foreign institutional investor.

“Filer” means Invesco Canada Ltd.

“Fund” means Invesco Global Equity Fund.

“Indian Securities” means Camara Bank, Grasim Industries Ltd., Oil and Natural Gas Corp. Ltd. and Tata Motors Ltd. being issuers that trade on the NSE held by the Fund.

“ICHI” means Invesco Canada Holdings Inc.

“Invesco Intactive Portfolios” means Invesco Intactive Diversified Income Portfolio, Invesco Intactive Balanced Income Portfolio, Invesco Intactive Balanced Growth Portfolio and Invesco Intactive Maximum Growth Portfolio.

“NSE” means the National Stock Exchange of India Ltd.

“SEBI” means the Securities and Exchange Board of India.

“Termination Date” means on or about December 21, 2012.

Representations

The Filer (a) is a corporation amalgamated under the laws of Ontario; (b) is an indirect wholly-owned subsidiary of Invesco Ltd., a global investment manager; (c) is not in default of applicable securities legislation in any jurisdiction; (d) has a head office located in Toronto, Ontario; and (e) is not a reporting issuer in any jurisdiction of Canada.

2. The Filer is the trustee and manager of the Fund and the Invesco Intactive Portfolios.

3. Invesco Advisers, Inc., an affiliate of the Filer, is the sub-advisor to the Fund and the Invesco Intactive Portfolios.

4. ICHI is (a) a corporation amalgamated under the laws of Ontario, and (b) a holding company not registered in any capacity in any province or territory of Canada. The Filer is a wholly-owned direct subsidiary of ICHI.

5. The Filer is registered as an investment fund manager in Ontario and an adviser in the category of portfolio manager in all provinces of Canada.

6. The Fund is (a) a “mutual fund” and a “mutual fund in Ontario” as defined in the Securities Act (Ontario); and (b) sold pursuant to a simplified prospectus dated July 30, 2012, as amended (the “Prospectus”).

7. The Fund currently invests in the Indian Securities which as of October 31, 2012 constituted in aggregate 0.51% of the net asset value of the Fund.

On July 19, 2012 SEBI provided notice to the Filer that its registration as a FII had lapsed and as a result all investment funds managed by the Filer must immediately cease trading in securities listed on the NSE, including sales of such securities (“Trade Prohibition”).
Due to the Trade Prohibition, the Indian Securities are deemed illiquid securities for the Fund.

10. The Fund is an underlying fund to Invesco Intactive Portfolios.

11. The Filer has taken the following steps to announce the termination of the Fund effective the Termination Date:

(a) on October 1, 2012, the Filer issued a press release;

(b) on October 2, 2012, the Filer filed a material change report;

(c) on October 5, 2012, the Filer amended the Prospectus; and

(d) on October 16, 2012, notice of termination of the Fund was sent to all investors in the Fund.

12. As of October 31, 2012, the Invesco Intactive Portfolios owned approximately 94.43% of the Fund and an institutional investor owned approximately 5.05% of the Fund.

13. Effective November 15, 2012, the Invesco Intactive Portfolios will redeem their holdings of the Fund.

14. The Filer anticipates that following the redemption by the Invesco Intactive Portfolios, the Indian Securities will constitute approximately 9% of the net asset value of the Fund.

15. As at October 31, 2012 the average global equity fund available for purchase in Canada, had approximately 0.3% exposure to India (source Morningstar Research Inc.).

17. The Filer or ICHI will pay the Fund the purchase price in cash in Canadian dollars on the Purchase Date. From the Purchase Date, the Fund will continue to retain legal ownership of the Indian Securities but will hold them in trust for the benefit of the Filer or ICHI, as the case may be (either of which will hold beneficial ownership), until such time as SEBI permits disposition of the Indian Securities. The purchase agreement will require the Fund to sell the Indian Securities upon receipt of permission from SEBI and to remit the proceeds of sale to the Filer or ICHI, as the case may be. As such, the Filer or ICHI may realize a gain or loss on the eventual sale of the Indian Securities and investors in the Fund will no longer have exposure to those investments as of the Purchase Date.

18. The Filer or ICHI will provide the Fund with an indemnity against any loss (excluding any forgone gain associated with an increase in the value of the Indian Securities between the Purchase Date and the date the Trade Prohibition is lifted) suffered as a result of the sale of the Indian Securities to the Filer or ICHI.

19. In the absence of the Exemption Sought neither the Filer nor ICHI would be permitted to purchase the Indian Securities from the Fund.

20. The Filer referred the purchase of the Indian Securities to the Fund’s independent review committee (“IRC”) at a meeting held on Thursday, November 15, 2012. The IRC approved the transaction on the basis set out herein and after making the determinations provided under sub-section 5.2(2) of National Instrument 81-107 – Independent Review Committee for Investment Funds.

21. The Filer believes that the Exemption Sought is in the best interests of the Fund and investors of the Fund.

Decision

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 is that the Exemption Sought is granted provided that the:

(a) Indian Securities are sold to the Filer or ICHI on the Purchase Date;

(b) price at which the Indian Securities are sold to the Filer or ICHI is the closing price of the Indian Securities on the NSE on the Purchase Date;

(c) Filer or ICHI shall provide the Fund with an indemnity against any loss it may suffer as a result of the sale of the Indian Securities to the Filer and ICHI except any forgone gain associated with the increase in value of the Indian Securities between the Purchase Date and the date the Trade Prohibition is lifted.

“ Vera Nunes “

Vera Nunes – Manager, Investment Funds Branch

Ontario Securities Commission

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions - Relief granted from s. 13.5(2)(b) of NI 31-103 based on exceptionally unique factual circumstances to permit portfolio manager to purchase illiquid securities from mutual fund to reduce risk of over-concentration - Relief subject to conditions including IRC approval and objective pricing