A mutual fund that replicates the performance or strategy of an existing mutual fund or index through the use of derivatives.
Clone funds were very common in Canada, where, until a legislative change in mid-2005, investors were limited in the amount of foreign investment they could have in their Registered Retirement Savings Plans . For example, suppose a Canadian investor wanted to buy an S&P 500 index fund for his RRSP but had no more room for foreign content. To get around the foreign-content restrictions, he or she would have purchased an S&P 500 clone fund, which replicated the performance of the S&P 500 but was classified as a Canadian security because it was composed of derivatives trading in Canada.
