Securities Law & Instruments

Headnote

Relief granted from the mutual fund conflict of interest investment prohibitions and management company reporting requirements of the Securities Act (Ontario) to permit pooled funds to invest in other pooled funds.

Statutes Cited:

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(3), 113, 117(1)(a), 117(1)(d), 117(2).

October 21, 2005

IN THE MATTER OF

THE SECURITIES ACT, R.S.O. 1990,

CHAPTER S.5, AS AMENDED (THE "ACT")

AND

IN THE MATTER OF

CANSO FUND MANAGEMENT LTD. ("CANSO")

AND

CANSO NORTH STAR FUND, CANSO RETIREMENT & SAVINGS FUND,

CANSO CORPORATE SECURITIES FUND,

CANSO CORPORATE VALUE FUND, CANSO CORPORATE BOND FUND,

THE CANSO FUND, CANSO CATALINA FUND,

CANSO RECONNAISSANCE FUND, CANSO INFLATION LINKED FUND,

CANSO INCOME FUND, CANSO PRIVATE DEBT FUND,

CANSO DIVIDEND AND INCOME FUND, CANSO HARRIER FUND,

CANSO PRESERVATION FUND, CANSO LONG SHORT FUND

AND CANSO HURRICANE FUND (THE "CANSO FUNDS")

 

ORDER

Background

The Ontario Securities Commission (the "Decision Maker") has received an application from Canso and the Canso Funds. Canso, as trustee and manager, wishes to engage in certain fund of fund strategies on behalf of the Canso Funds and may wish to engage in similar fund of fund strategies for other pooled funds managed or advised by Canso in the future (collectively, the "Top Funds"). Each Top Fund may from time to time invest in securities of any of the Canso Funds or in any other pooled funds or public mutual funds created and managed by Canso from time to time (collectively, the "Underlying Funds"). Canso is requesting the following relief (the "Requested Relief") in respect of the Top Funds' investments in the Underlying Funds:

(a) The restriction prohibiting a mutual fund from knowingly making or holding an investment:

(i) in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial securityholder; or

(ii) in an issuer in which,

(1) any officer or director of the mutual fund, its management company or distribution company or an associate of any of them, or

(2) any person or company who is a substantial securityholder of the mutual fund, its management company or its distribution company,

has a significant interest, as set out in the Act; and

(b) The requirement of a management company to file a report of every transaction of purchase or sale of securities between a mutual fund, if that mutual fund is a reporting issuer, it manages and any related person or company, and any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, a mutual fund is a joint participant with one ore more of its related persons or companies, in respect of each mutual fund to which it provides services or advice, within 30 days after the end of the month in which it occurs, as set out in the Act

(together, (a) and (b) are the "Applicable Restrictions").

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by Canso:

1. Canso is a company incorporated under the laws of Ontario.

2. Canso is or will be the trustee and manager of the Top Funds and the Underlying Funds.

3. The custodian of the Top Funds and the Underlying Funds is CIBC Mellon Global Securities Services Company.

4. Each Top Fund and each Underlying Fund is or will be an open-end mutual fund trust established under the laws of Ontario by declaration of trust.

5. Units of the Top Funds are or will be distributed on a private placement basis pursuant to available prospectus exemptions in some or all of the provinces of Canada.

6. Units of the Underlying Funds are or will be distributed on a private placement basis pursuant to available prospectus exemptions or they will be offered pursuant to a prospectus in some or all of the provinces of Canada.

7. It is proposed that the Top Funds may invest in units of the Underlying Funds.

8. Canso intends to invest a certain portion of the assets of the Top Funds in the Underlying Funds. The percentages invested in each Underlying Fund may fluctuate on a daily basis based on the investment decisions made by Canso in order to meet the investment objectives of each Top Fund.

9. The actual weightings of the investments by each Top Fund in the Underlying Funds will be reviewed on a regular basis and adjusted to ensure that the investment weightings continue to be appropriate for that Top Fund's investment objectives. Canso will actively manage the investments made by each Top Fund in the Underlying Funds on a regular basis.

10. The annual financial statements of the Top Funds, which are made available to unitholders in accordance with securities legislation, together with an auditors report, will include summary disclosure of the securities held by the Underlying Funds. In addition, the offering memorandum will contain information about how a Top Fund unitholder may obtain a copy of the Underlying Fund offering memorandum or simplified prospectus and annual information form, and annual or semi-annual financial statements, which will be sent to them free of charge.

11. No charges will be payable in connection with the acquisition or disposition by the Top Funds of units of the Underlying Funds.

12. No management fee or incentive fees are payable by the Top Funds that, to a reasonable person, would duplicate a fee payable by the Underlying Fund for the same service.

13. Where a matter relating to an Underlying Fund requires a vote of unitholders of the Underlying Funds, Canso will not cause the securities of the Underlying Fund held by a Top Fund to be voted at such meeting.

14. Any investment by the Top Funds in securities of any Underlying Fund will represent the business judgement of "responsible persons" uninfluenced by considerations other than the best interests of the funds.

15. In the absence of this Order, the Applicable Requirements prohibit the Top Funds knowingly making or holding an investment in the Underlying Funds.

16. In the absence of this Order, the Applicable Requirements require Canso to file a report on every purchase or sale of securities of an Underlying Fund to the Top Funds if the Underlying Fund is a reporting issuer.

Decision

The Decision Maker is satisfied that the test contained in the Act that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Maker under the Act is that the Requested Relief is granted provided that:

(a) the annual financial statements for each of the Top Funds discloses:

(i) the intent of the Top Fund to invest a portion of its assets in securities of the Underlying Funds;

(ii) the manager of the Underlying Funds; and

(iii) the name of the Underlying Funds;

(b) the offering memorandum for each of the Top Funds discloses:

(i) the intent of the Top Fund to invest a portion of its assets in securities of the Underlying Funds;

(ii) the manager of the Underlying Funds; and

(iii) the process or criteria used to select the Underlying Funds.

(c) units of the Top Funds are or will be distributed on a private placement basis pursuant to available prospectus exemptions in some or all of the provinces of Canada.

(d) the arrangements between or in respect of a Top Fund and the Underlying Funds are such as to avoid the duplication of management and performance fees;

(e) the Manager does not vote the securities of the Underlying Funds held by a Top Fund at any meeting of holders of such securities; and

(f) the offering memorandum will contain information about how a Top Fund unitholder may obtain a copy of the Underlying Fund offering memorandum or simplified prospectus and annual information form, and annual or semi-annual financial statements, which will be sent to them free of charge.

"Suresh Thakrar"

"Harold P. Hands"