January 17, 2023
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 INVESCO CANADA LTD. (the Filer)
AND
INVESCO BALANCED-RISK ALLOCATION POOL (the Pool)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of the Pool for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Series F and I units (collectively, the Units) of the Pool from:
(a) sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Pool to include its past performance data in sales communications notwithstanding that the past performance data will relate to a period prior to the Pool offering its Units under a simplified prospectus;
(b) section 15.1.1(a) of NI 81-102 and Items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (Appendix F) to permit the Pool to include its past performance data in determining its investment risk level in accordance with Appendix F;
(c) section 15.1.1(b) of NI 81-102 and Item 4(2)(a) and Instruction (1) of Item 4 of Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3) to permit the Pool to disclose its investment risk level as determined by including its past performance data in accordance with Appendix F;
(d) Item 10(b) of Part B of Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) to permit the Pool to use its past performance data to calculate its investment risk rating in its simplified prospectus;
(e) section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the relief requested herein from Form 81-101F1 and Form 81-101F3;
(f) Items 5(2), 5(3) and 5(4) and Instructions (1) and (5) of Part I of Form 81-101F3 in respect of the requirement to comply with sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of NI 81-102 to permit the Pool to include in its fund facts the past performance data of the Pool notwithstanding that such performance data relates to a period prior to the Pool offering its Units under a simplified prospectus and the Pool has not distributed its Units under a simplified prospectus for 12 consecutive months;
(g) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of relief requested herein from Form 81- 106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1); and
(h) Items 3.1(7), 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.3(4)(c) of NI 81-102, 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B of Form 81-106F1 and Items 3(1) and 4 of Part C of Form 81-106F1 to permit the Pool to include in its annual and interim management reports of fund performance (MRFP) the past performance data and financial highlights of the Pool notwithstanding that such performance data and financial highlights relate to a period prior to the Pool offering its Units under a simplified prospectus.
(collectively, 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 the Jurisdiction, the Canadian Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102, NI 81-101, NI 81-102 and NI 81-106 have the same meanings if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Pool is an open-ended mutual fund trust established on November 7, 2012, under the laws of the Province of Ontario. The Pool is governed by an amended and restated declaration of trust dated as of November 4, 2022, as same may be amended and/or restated from time to time.
The Filer is the investment fund manager, trustee, and portfolio manager of the Pool. The head office of the Filer is located in Toronto, Ontario.
The Filer is registered as an investment fund manager in Ontario, Québec, and Newfoundland and Labrador and as a portfolio manager in every province of Canada. The Filer is also registered in other related categories.
Since the Pool’s commencement of operations on November 7, 2012 through November 4, 2022, the units of the Pool were distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions in each of the Canadian Jurisdictions other than Ontario and in accordance with the Securities Act in Ontario.
The Pool consists of two series of Units:
(a) Series F Units of the Pool which were offered for sale effective June 20, 2017 (the Series F Effective Date); and
(b) Series I Units of the Pool which were offered for sale effective November 16, 2012 (the Series I Effective Date, together with the Series F Effective Date, the Effective Dates).
The Pool commenced distributing Units of the Pool pursuant to a simplified prospectus and, to that end, filed a simplified prospectus and fund facts documents dated November 4, 2022 (the “Disclosure Documents”). Upon the issuance of the final receipt for the Disclosure Documents, the Pool became a reporting issuer in each of the Canadian Jurisdictions and became subject to the requirements of NI 81-102 that relate to alternative mutual funds and the requirements of NI 81-106 that apply to investment funds that are reporting issuers.
The Pool adopted a new investment objective upon becoming a reporting issuer. The Pool’s investment objective, as stated in the Disclosure Documents, is to seek to provide total return with low to moderate correlation to traditional financial market indices by investing, directly or indirectly, in a diversified portfolio of equity securities, fixed income securities and commodities located anywhere in the world. The Pool may invest more than 10% of its NAV, directly or indirectly, in commodities. The Pool may also use leverage through the use of derivatives, which shall not exceed a certain percentage (currently 250%) of the Pool’s NAV or as otherwise permitted under applicable securities legislation.
In order to achieve its investment objective, the Pool’s equity exposure is achieved through investments in derivatives that track equity indices comprised of securities of companies anywhere in the world. The Pool’s fixed income exposure is achieved through derivatives that offer exposure to the debt or credit of issuers in developed and/or emerging markets that are rated investment grade or are unrated but are, in the portfolio management team’s opinion, equivalent to investment grade, including U.S. and foreign government debt securities having intermediate (5-10 years) and long (10 plus years) term maturity. The Pool’s commodity exposure is achieved through investment in commodity futures and swaps, commodity related exchange-traded funds and exchange-traded notes and commodity-linked notes. The Pool uses leverage through the use of derivative contracts.
- The Pool is managed substantially similarly after it became a reporting issuer as it was during the period prior to becoming a reporting issuer. Specifically,
(a) While the investment objective of the Pool, as stated in the Disclosure Documents, is changed from the Pool’s investment objective in the period prior to becoming a reporting issuer, this change was made to clarify and restate the Pool’s investment objective in accordance with applicable prospectus disclosure requirements and did not impact the implementation of the Pool’s strategy and accordingly did not change the manner in which the Pool is managed;
(b) There were no changes to the fee and expense structure associated with Series I Units that were distributed prior to the Pool becoming a reporting issuer. For Series F Units, prior to the Pool becoming a reporting issuer, the Pool paid all operating expenses and the Filer, in its discretion, absorbed or waived expenses such that the operating expenses portion of the management expense ratio (MER) of Series F Units was maintained at 0.15% of that series’ average daily NAV per year (excluding HST). Since the Pool has become a reporting issuer, the Filer has agreed to cap the operating expenses portion of the MER of the Series F Units at 0.25% of that series’ average daily NAV per year (excluding HST);
(c) The day-to-day administration of the Pool did not change, other than to comply with the additional regulatory requirements associated with being a reporting issuer (as modified by exemptive relief obtained on behalf of, among others, the Pool), none of which impact the portfolio management of the Pool, and to provide additional features that are available to investors of mutual funds managed by the Filer, as described in the Disclosure Documents.
Since its inception, as a “mutual fund in Ontario”, the Pool has complied with the applicable obligation to prepare and send audited annual and unaudited interim financial statements to all holders of its securities in accordance with NI 81-106.
Prior to becoming a reporting issuer, the Pool was not required to comply with the investment restrictions and practices contained in NI 81-102 that relate to alternative mutual funds (the Alternative Fund Rules). Except as noted below, the Pool’s investments from inception to the date it became a reporting issuer, have, however, substantially complied with the Alternative Fund Rules. The sole instances in which the Pool was not in compliance with the Alternative Fund Rules were the result of (1) an investment in a non-Canadian ETF, the underlying investments of which would have been permitted by the Alternative Fund Rules, and (2) investments in foreign government bonds in excess of prescribed concentration limits that have an immaterial contribution to the Pool’s performance during the relevant period.
Since becoming a reporting issuer, the Pool has (except as set out in any exemptive relief received by, among others, the Pool) complied and will comply with the Alternative Fund Rules.
Each of the Filer and the Pool are not in default of securities legislation in any of the Canadian Jurisdictions.
In sales communications pertaining to the Pool, the Filer proposes to present the Pool’s performance data for:
(a) series F Units of the Pool for the time period commencing as of the Series F Effective Date; and
(b) series I Units of the Pool for the time period commencing as of the Series I Effective Date.
Without the Exemption Sought, the sales communications pertaining to the Pool cannot include performance data of the Pool that relates to a period prior to the Pool becoming a reporting issuer, and the Pool cannot provide performance data in its sales communications until it has distributed securities under a simplified prospectus for at least 12 consecutive months.
As a reporting issuer, the Pool is required under NI 81-101 to prepare and file a simplified prospectus and fund facts documents.
The Filer proposes to use the Pool’s past performance data for the time period commencing November 16, 2012 to determine its investment risk level and to disclose that investment risk level in the simplified prospectus and the fund facts documents for each Series of Units. Without the Exemption Sought, the Filer, in determining and disclosing the Pool’s investment risk level in the simplified prospectus and the fund facts documents for each Series of Units, cannot use performance data of the Pool that relates to a period prior to the Pool becoming a reporting issuer.
The Filer proposes to include in the fund facts documents past performance data for the time period commencing the Series F Effective Date in the case of Series F Units of the Pool and the Series I Effective Date in the case of Series I Units of the Pool in the charts required by Items 5(2), 5(3), and 5(4) of Part I of Form 81-101F3 under the sub-headings “Year-by-year returns”, “Best and worst 3-month returns”, and “Average return”, respectively, related to periods prior to the Pool becoming a reporting issuer. Without the Exemption Sought, the fund facts documents of the Pool cannot include performance data of the Pool that relates to a period prior to the Pool becoming a reporting issuer.
As a reporting issuer, the Pool is required under NI 81-106 to prepare and send MRFPs to all holders of its securities on an annual and interim basis. Without the Exemption Sought, the MRFPs of the Pool cannot include financial highlights and performance data of the Pool that relates to a period prior to the Pool becoming a reporting issuer.
The performance data and other financial data of the Pool for the time period commencing as of the Effective Dates and before it became a reporting issuer is significant and meaningful information for existing and prospective investors of Units of the Pool.
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 under the Legislation is that the Exemption Sought is granted provided that:
(a) any sales communication, fund facts documents and MRFP that contains performance data of the Units of the Pool relating to a period of time prior to when the Pool was a reporting issuer discloses:
(i) that the Pool was not a reporting issuer during such period;
(ii) the expenses of the Pool would have been higher during such period had the Pool been subject to the additional regulatory requirements applicable to a reporting issuer;
(iii) the Filer obtained exemptive relief on behalf of the Pool to permit the disclosure of performance data of the Units relating to a period prior to when the Pool was a reporting issuer; and
(iv) with respect to any MRFP, the financial statements of the Pool for such period are available to investors upon request; and
(b) the Filer makes the financial statements of the Pool since the Effective Dates available to investors upon request.
“Darren McKall”
Darren McKall
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission
Application File #: 2022/0510
SEDAR File #: 3454679