Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- revocation and replacement of an existing order under National Policy No. 39 -- Mutual Funds for relief from certain provisions of NI 81-102 -- Mutual Funds to permit the Fund's investment objective, structure and operation as set out in the Decision Document.

Applicable Legislative Provisions

National Instrument 81-102 -- Mutual Funds, ss. 2.2(1), 2.3(a), 2.3(b), 2.3(i), 2.4, 2.6(a), 2.6(f), 2.6(g), 4.1(2), Part 6, ss. 10.4(1), 10.6.

April 18, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

PRINCE EDWARD ISLAND, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR, NORTHWEST

TERRITORIES, YUKON AND NUNAVUT

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS ("MRRS")

AND

IN THE MATTER OF

I.G. INVESTMENT MANAGEMENT, LTD. (IGIM),

INVESTORS GROUP TRUST CO. LTD. (IGTC)

AND

INVESTORS REAL PROPERTY FUND (the Fund)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application (the Application) from IGIM and IGTC on behalf of the Fund for which IGIM acts as manager and IGTC acts as the trustee for:

• a Decision under the securities legislation of the Jurisdictions (the Legislation) to revoke and replace the Decision Document dated June 13, 1997 in respect of the Fund (the Existing Decision Document) which decided that paragraph 2.04(1)(c) of former National Policy No. 39 -- Mutual Funds (NP 39) did not apply to the Fund, provided the Fund complied with all of the provisions of former OSC Policy Statement 11.5 -- Real Estate Mutual Funds -- General Prospectus Guidelines (former OSC 11.5) unless deviation therefrom was approved by the securities regulatory authorities, and

• an exemption from the following provisions of National Instrument 81-102 - Mutual Funds (NI 81-102) (the Requested Relief) to the extent necessary to permit the Fund's investment objective, structure and operation as set out in this Decision:

(i) subsection 2.2(1) which prohibits a mutual fund from holding securities which represent more than 10% of the voting or equity securities of an issuer and from purchasing securities for the purpose of control or management;

(ii) paragraph 2.3(a) which prohibits a mutual fund from purchasing real property;

(iii) paragraph 2.3(b) which prohibits a mutual fund from purchasing a mortgage other than a guaranteed mortgage;

(iv) paragraph 2.3(i) which prohibits a mutual fund from purchasing an interest in a loan participation if the mutual fund assumes responsibilities in administering the loan;

(v) section 2.4 which prohibits a mutual fund from making certain illiquid investments;

(vi) paragraph 2.6(a) which prohibits a mutual fund from borrowing or providing a security interest over its assets unless the requirements of the paragraph are complied with;

(vii) paragraph 2.6(f) which prohibits a mutual fund from lending cash or other assets;

(viii) paragraph 2.6(g) which prohibits a mutual fund from guaranteeing securities or obligations;

(ix) subsection 4.1(2) which prohibits a mutual fund from investing in certain related entities in order that the Fund can invest in joint venture corporations and wholly-owned corporations;

(x) Part 6 which requires that portfolio assets of a mutual fund be held in accordance with that Part in order that the real property and mortgage assets of the Fund can be held in accordance with the conditions set out in paragraphs B.5 and B.13, respectively, below;

(xi) subsection 10.4(1) which requires that the redemption price for securities redeemed be paid by a mutual fund in accordance with that subsection within three business days; and

(xii) section 10.6 which governs the circumstances in which a mutual fund may suspend redemptions.

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Manitoba Securities Commission is the principal regulator for the Application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 -- Definitions (NI 14-101), in NI 81-102, and in National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107) 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 IGTC:

1. The Fund is an open end real estate mutual fund organized by a Trust Agreement dated November 2, 1983, as amended from time to time. The Fund is currently governed by an Amended and Restated Trust Agreement dated as of December 6, 2004 (the Trust Agreement).

2. Units of the Fund were first offered under a prospectus dated December 5, 1983. At that time, to the knowledge of IGTC, there was no prohibition on a mutual fund investing in real property.

3. Until the introduction of former OSC 11.5 in January, 1987 (and other similar policies) the Fund operated in accordance with an investment objective, investment restrictions and other operating guidelines that were set out in the prospectus of the Fund and accepted by the Decision Makers at the time, as evidenced by the issue of a receipt for the prospectus.

4. Former OSC 11.5 (and other similar policies) was introduced, to the knowledge of IGTC, to formalize the basis on which the Decision Makers at the time would permit mutual funds to invest in real property. Former OSC 11.5 (and other similar policies) provided an exemption from conflicting provisions of other policies and, accordingly, the Fund did not require any relief from section 2.04(1)(c) of NP 39 when NP 39 came into force in 1988.

5. Former OSC 11.5 (and other similar policies with the exception of Quebec Regulation Q-25) was rescinded in 1997. To the knowledge of IGTC, real estate mutual funds (other than the Fund) had, prior to that time, suspended redemptions and either reorganized or wound up such that the Fund was the only open end real estate mutual fund being offered in 1997.

6. The Fund was subject to NP 39 and is now subject to NI 81-102.

7. Subsection 2.04(1)(c) of NP 39 stated:

"Investment Restrictions

1. A mutual fund shall not without the prior approval of the securities authorities:

. . . (c) purchase real estate."

8. Paragraph 2.3(a) of NI 81-102 currently states:

"2.3 Restrictions Concerning Types of Investments -- A mutual fund shall not

(a) purchase real property."

9. The Fund's principal investment objective is stated in its prospectus to be:

"...long term capital growth combined with a continued income stream through investments in real property. To achieve this objective the Fund has assembled and intends to continue to assemble a diversified portfolio of income producing real properties with a better than average growth potential."

10. As a result of its investment objective, with the rescission of former OSC 11.5 (and other similar policies) the Fund required a waiver from paragraph 2.04(1)(c) of NP 39 (now paragraph 2.3(a) of NI 81-102).

11. On June 13, 1997, the Deputy Director, Corporate Finance of the MSC issued the Existing Decision Document under NP 39 on condition that the Fund comply:

"...with all of the provisions of the former local OSC Statement 11.5 -- Real Estate Mutual Funds -- General Prospectus Guidelines of the Ontario Securities Commission. Proposed deviations from the said conditions will require the approval of the securities regulatory authorities."

12. Following the replacement of NP 39 with NI 81-102, the Fund continued to be subject to the Existing Decision Document.

13. The Fund has previously received the following relief, either pursuant to the issue of a waiver letter, a decision from the Autorité des Marchés Financiers (the AMF) or as the result of the issue of a receipt for the prospectus of the Fund, from complying with certain provisions of former OSC 11.5:

(a) relief from the appraisal disclosure requirements in sections Q.1 (c) (viii) and Q.1 (d) provided that:

(i) the Fund file, on a confidential basis, a schedule setting forth the appraised value of each individual property held by it as part of the annual renewal of its prospectus with the Decision Maker in each of the Jurisdictions (such schedule not to form part of the public record of the Fund); and

(ii) the Fund discloses in its prospectus and in its annual and interim financial statements the aggregate value of all of the real properties held by it by region of location;

(b) relief from the single class of unit requirement in section C.1 to permit the Fund to issue additional classes of units; and

(c) relief from various prospectus disclosure requirements provided that alternative disclosure as requested by the MSC, as principal regulator, is included in the prospectus of the Fund.

14. Units of the Fund are currently being offered to the public under a prospectus dated June 30, 2006. To the knowledge of IGTC and IGIM the Fund is not in default under the Legislation.

15. The Fund is the only open end real estate mutual fund offered in Canada.

16. A number of provisions of former OSC 11.5 are out of date, redundant or no longer applicable due to changes in the industry and securities legislation that have occurred since 1987.

17. The following is a summary of the governance structure of the Fund at the time of the Application:

(i) IGTC is the trustee and I.G. Investment Management, Ltd. ("IGIM") is the manager;

(ii) the Board of Directors of IGTC consists of eight members, at least one-third of whom are independent of IGTC, IGIM and their affiliates;

(iii) IGIM is the manager, portfolio advisor and registrar;

(iv) the Board of Directors of IGIM consists of six members, none of whom is independent of IGTC, IGIM and its affiliates;

(v) Canadian Imperial Bank of Commerce through CIBC Mellon Global Custody Services (CIBC Mellon) is the custodian of the assets, other than real property assets;

(vi) the real property assets are registered in the name of IGTC or a nominee corporation wholly owned by IGTC, as trustee;

(vii) IGIM has, as part of its skilled personnel, at least nine individuals who have had at least five years of substantial experience in the real estate field;

(viii) IGTC has retained IGIM to, among other things, provide the Fund with advice and recommendations with respect to the purchase and sale of real property assets and securities of the Fund. IGIM also provides administrative, accounting and other services and facilities;

(ix) IGIM's recommendations with respect to the purchase, sale or new or assumed mortgage financing of real properties are reviewed and approved by an IGIM investment committee (the Investment Committee) comprised of four individuals, all of whom have at least five years of substantial experience in the real estate field;

(x) the Board of Directors of IGTC has appointed a Fund investment approval committee (the Approval Committee) to review and approve, in accordance with former OSC 11.5, the purchase, sale and mortgage financing of specific real properties that are recommended by the Investment Committee. The Approval Committee consists of three members of the IGTC Board, two of whom are independent{1} of IGTC and IGIM and their affiliates and one of whom is a director of IGIM (and also a member of the Investment Committee). All members of the Approval Committee have had at least five years of substantial experience in the real estate field;

(xi) IGIM is responsible for the implementation of portfolio transactions in securities and in real property investments;

(xii) IGIM also provides or, on behalf of IGTC, engages others to provide real estate management services for the Fund;

(xiii) IGTC has, in addition to the Approval Committee, appointed an audit committee and an investment and conduct review committee which provide oversight in respect of the Fund and other mutual funds of which IGTC is the trustee. A majority of the members of each are independent.

18. Pursuant to section 3.2 of NI 81-107, IGIM must appoint an independent review committee (IRC) for the Fund.

19. Pursuant to section 3.7 of NI 81-107, each member of the IRC must be independent, as defined in NI 81-107, and there must be at least three members.

20. Pursuant to section 5.1 of NI 81-107, IGIM must refer all conflict of interest matters relating to the Fund to the IRC and in respect of certain matters IGIM must not proceed without the approval of the IRC.

21. In conjunction with the implementation of NI 81-107 and in recognition of the fact that certain provisions of former OSC 11.5 are out of date, redundant, not required in respect of other types of mutual funds or no longer applicable due to changes in the industry and securities legislation, IGTC is proposing to make certain changes to the governance structure of the Fund, including the following:

(i) IGTC will transfer its role as trustee of the Fund to IGIM and IGIM will continue to be the manager;

(ii) the title to the real property currently owned by the Fund, and registered in the name of IGTC or a nominee corporation wholly owned by IGTC, will remain registered in the name of IGTC or the nominee corporation, on behalf of the Fund;

(iii) the title to real property subsequently acquired by the Fund will be held in compliance with section G.5 of former OSC 11.5;

(iv) the Board of Directors of IGIM will appoint a fund oversight committee (the Fund Oversight Committee) that will assist the Board of Directors with the general oversight responsibility for the Fund and other mutual funds managed by IGIM and an audit committee (the Audit Committee) that will assist the Board of Directors with the financial oversight responsibility for the Fund and other mutual funds managed by IGIM;

(v) IGIM will appoint an IRC for the Fund;

(vi) IGIM will continue the Investment Committee as follows:

(a) it will be composed of at least three members;

(b) all of the members will either have at least five years substantial experience in commercial real estate or be registered as an advising officer or an advising representative of IGIM;

(c) at least two of the three members will have five years substantial experience in commercial real estate;

(d) at least one of the three members will be a senior advising officer or senior advising representative of IGIM; and

(e) all of the members will be either employees or officers of IGIM.

(vii) a member of the Investment Committee who has experience in commercial real estate but is not qualified to be registered as an advising officer or advising representative will be registered as a non-advising officer of IGIM. Other members of the Investment Committee will be registered as advising officers or advising representatives of IGIM;

(viii) the portfolio manager of the Fund (who will not be a member of the Investment Committee) will be an employee of IGIM who will have at least five years substantial experience in commercial real estate and will be registered with IGIM if there is an appropriate category of registration ;

(ix) the Investment Committee will approve purchases, sales and new or assumed mortgages in connection with real property of the Fund; provided that the IRC will, in accordance with NI 81-107, make recommendations in respect of conflict of interest matters and will approve arrangements, in accordance with NI 81-107, described in paragraph 7 of section B below; and

(x) the Board of Directors of IGIM, on behalf of IGIM, will perform the functions currently required to be performed by the trustees under sections H.2., I.3., L.1., L.3., L.4. and P.3. of former OSC 11.5.

22. The Fund has filed an application with the AMF for an exemption from the application of Quebec Regulation Q-25.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Existing Decision Document is hereby revoked and replaced with the following Decision with effect as of, and from, the date hereof;

And the decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

A. Borrowings -- Limit on Leverage

1. The Fund shall not assume or incur any indebtedness under a mortgage on the security of real property unless, at the date of the proposed assumption or incurring of indebtedness:

(a) the aggregate of (i) the amount of all indebtedness secured on such real property and (ii) the amount of additional indebtedness proposed to be assumed or incurred does not exceed 75 per cent of the market value of such real property; and

(b) the aggregate of (i) of the total indebtedness of the Fund under mortgages on the security of real property and (ii) the amount of additional indebtedness proposed to be assumed does not exceed 50 per cent of the total asset value of the Fund;

2. Borrowing other than by way of mortgages on the security of real property is prohibited except for temporary borrowings, up to a maximum of 10 per cent of net asset value of the Fund, to meet redemptions; and

3. The Fund shall not directly or indirectly guarantee any indebtedness or liabilities of any kind except indebtedness assumed or incurred under a mortgage on the security of real property by a corporation wholly-owned by the Fund and operated solely for the purpose of holding a particular real property or properties where which mortgage, if granted by the Fund directly, would not cause the Fund to contravene paragraph 1 of this section A.

B. Investments

1. Subject to paragraphs 3 and 13 of this section B, the Fund shall invest only in equity interests in income-producing real property (including fee ownership and leasehold interests) in Canada;

2. For the purposes of this decision, a "joint venture arrangement" is an arrangement pursuant to which the Fund holds an interest in real property jointly or in common with others ("joint venturers") either directly or through the ownership of securities of a corporation ("joint venture corporation") formed and operated solely for the purpose of holding a particular real property or properties, and references in this section B to an investment in real property shall be deemed to include an investment in a joint venture arrangement;

3. The Fund shall not invest in any real property if the investment would have the effect of reducing the Fund's liquid assets to an amount less than the amount required by the following table:

Net Asset Value
Minimum Amount to be
of the Fund
Maintained in Liquid Assets
 
$10,000,0000 to
10% of net asset value of the
$20,000,000
Fund
 
$20,000,000 to
$2,000,000 plus 9% of net asset
$30,000000
value of the Fund over
$20,000,000
 
$30,000,000 to
$2,900,000 plus 8% of net asset
$40,000,000
value of the Fund over
$30,000,000
 
$40,000,000 to
$3,700,000 plus 7% of net asset
$50,000,000
value of the Fund over
$40,000,000
 
$50,000,000 or
$4,400,000 plus 6% of net asset
more
value of the Fund over
$50,000,000

"Liquid assets" means cash or deposits with a Canadian chartered bank or a trust company registered under the laws of Canada or of a province of Canada which are cashable or saleable prior to maturity, or securities issued or guaranteed by the Government of Canada or of a province or territory of Canada or money market instruments maturing prior to one year from the date of issue. No more than 20 per cent of the minimum amount required to be maintained by the Fund in liquid assets may be invested in the securities of any one issuer except for securities issued or guaranteed by the Government of Canada or of a province or territory of Canada, or short term paper and certificates of deposit issued or guaranteed by a Canadian chartered bank;

4. The Fund shall not acquire any single investment in real property if the cost to the Fund of such acquisition (net of the amount of encumbrances assumed) will exceed the greater of:

(i) $5,000,000

(ii) 20 percent of the net asset value of the Fund;

5. Title to each real property currently owned by the Fund, and registered in the name of IGTC or a nominee corporation wholly owned by IGTC, on behalf of the Fund may remain registered in the name of IGTC or the nominee corporation, on behalf of the Fund and title to each real property subsequently acquired by the Fund shall be held by, and registered in, the name of the Fund or IGIM as trustee of the Fund or a corporation wholly owned by the Fund (either alone or jointly with joint venturers), or in the name of a joint venture corporation;

6. The Fund may invest in a joint venture arrangement only if:

(a) the Fund's interest in the joint venture arrangement is not subject to any restrictions on transfer other than a right of first refusal, if any, in favour of the joint ventures

(b) the Fund has a right of first refusal to buy the interests of joint venturers; and

(c) the joint venture arrangement provides an appropriate buy-sell mechanism to enable the Fund to cause the joint venturers to purchase the Fund's interest or to sell their interests to the Fund;

7. The Fund may not enter a joint venture arrangement with (i) the manager of any affiliate or associate of the manager, (ii) a trustee or any affiliate or associate of a trustee, (iii) a promoter or any affiliate or associate of a promoter; (iv) a substantial security holder of the Fund, manager or promoter or any affiliate or associate of such substantial security holder, or (v) an officer, director or employee of the Fund, or the manager or of the promoter or of any affiliate of the Fund, manager, or promoter unless the agreement is approved by the Fund's IRC pursuant to NI 81-107 and is not otherwise prohibited by the Legislation;

8. Subject to paragraph 3 of this section B, the Fund may not hold securities of a corporation other than a joint venture corporation or a corporation wholly owned by the Fund formed and operated solely for the purpose of holding a particular real property or properties;

9. Any written instrument creating an obligation which is or includes the granting by the Fund of a lease, sublease or mortgage or which is, in the judgment of the manager, a material obligation shall contain a provision to the effect that the obligation being created is not personally binding upon, and that resort shall not be had to, nor shall recourse or satisfaction be sought from, the private property of any of the security holders, but the property of the Fund or a specific portion thereof only shall be bound. The Fund is not required to comply with this requirement in respect of obligations assumed by the Fund upon the acquisition of real property;

10. The Fund shall not lease or sublease to any person a real property, premises or space where that person and its affiliates would, after the contemplated lease or sublease, be leasing or subleasing real property, premises or space having a fair market value net of encumbrances in excess of 20 percent of the net asset value of the Fund;

11. The Fund shall not enter into any transaction involving the purchase of lands or land improvements thereon and the leasing thereof back to the vendor where the fair market value net of encumbrances of the property being leased to the vendor together with all other property being leased by the Fund to the vendor and its affiliates is in excess of 20 percent of the net asset value of the Fund;

12. The limitation contained in paragraph 10 of this section B shall not apply to the renewal of a lease or sublease and the limitations contained in paragraphs 10 and 11 of this section B shall not apply where the person to whom the lease or sublease is made is, or where the lease or sublease is guaranteed by:

(a) the Government of Canada, any Province of Canada, any municipality of Canada or any agency thereof; or

(b) any corporation, the preferred shares or common shares of which are, at the time of lease or sublease, authorized as an investment for insurance companies pursuant to the Insurance Companies Act (Canada); or

(c) any corporation, the bonds, debentures or other evidences of indebtedness of which are authorized as an investment for insurance companies pursuant to the Insurance Companies Act (Canada);

13. The Fund may invest in a mortgage only where:

(a) the mortgage is taken back by the Fund as part consideration for the disposition of the property by the Fund;

(b) the mortgage is a first charge on the property;

(c) the amount of the mortgage loan is not in excess of 75 percent of the fair market value of the property securing the mortgage, as determined by an appraisal of the real property at the time of the disposition;

(d) the term of the mortgage is five years or less and the amortization period is 30 years or less;

(e) the mortgage is registered on title to the real property which is security therefore; and

(f) the aggregate value of the investments of the Fund in mortgages after giving effect to the proposed investment will not exceed 10 percent of the net asset value of the Fund;

14. The Fund shall not engage in construction or development of real property except to the extent necessary to maintain its real properties in good repair or to enhance the income-producing ability of properties owned by the Fund;

15. For the purposes of compliance with the requirements of this section B, the assets, liabilities and transactions of a corporation wholly owned by the Fund shall be deemed to be those of the Fund; and

16. The Fund may invest or expend an amount (which, in the case of an invested to acquire real property, is the purchase price less the amount of any indebtedness assumed or incurred by the Fund and secured by a mortgage on such property), up to 15 percent of the net asset value of the Fund in investments or transactions which do not comply with paragraphs 1, 8, 10, 11, 13 and 14 of this section B.

C. Investment Policies

1. The Fund's prospectus shall contain a statement in reasonable detail of the investment policies and objectives of the Fund; and

2. The Board of Directors of the manager, on behalf of the manager, shall review the investment policies at least annually to determine that the policies being followed by the Fund at any time are in the best interests of its security holders. Each such determination and the basis therefore shall be recorded in the minutes of the meetings of the Board of Directors of the manager.

D. Prudent Investment Standards

1. The manager shall adhere to prudent investment standards in making investment recommendations and decisions and in managing the investments of the Fund and shall establish procedures to ensure that prudent investment standards are applied in making investment recommendations and decisions and in managing the investments of the fund. Prudent investment standards are those which a reasonably prudent person of like experience would apply to investments made on behalf of another person with whom there exists a fiduciary relationship to make such investments, without undue risk of loss or impairment and with a reasonable expectation of fair return or appreciation;

2. The manager shall develop the procedures referred to in paragraph 1 of this section D and shall refer them to its Board of Directors for approval. At least once each year, the manager shall review the procedures and refer them to its Board of Directors with its recommendations, if any, with respect to the procedures; and

3. The Board of Directors of the manager shall ensure that the procedures are developed and referred to them by the manager at least once each year for approval. They shall review such procedures and the recommendations of the manager and make such changes as they consider necessary.

E. Prohibition Against Self-Dealing

1. Except as permitted under paragraph 7 of section B, the Fund shall not make or dispose of any investment in real property where (i) the manager or any affiliate or associate of the manager, (ii) a trustee or any affiliate or associate of a trustee, (iii) a promoter or any affiliate or associate of a promoter, (iv) a substantial security holder of the Fund, manager or promoter or any affiliate or associate of such substantial security holder, or (v) an officer, director or employee of the Fund, of the manager or of the promoter or of any affiliate of the Fund, manager or promoter:

(a) has or expects to obtain directly or indirectly an interest in the transaction (other than usual brokerage fees or commissions, property management fees, or management fees paid to the Fund manager pursuant to the management agreement);

(b) has at any time in the period of 24 months preceding the date of the transaction had a direct or indirect material financial interest in the real property being acquired or disposed of; or

(c) has an interest in a mortgage on the real property being acquired (other than an interest as lender if the lending of money on the security of mortgages is part of the ordinary business of the lender and the mortgage was made in the course of the lender's business).

unless each such transaction has been approved by the Fund's IRC pursuant to NI 81-107 and is not otherwise prohibited by the Legislation.

For the purposes of this section E a "substantial security holder" means any person, company or combination of persons or companies that beneficially owns directly or indirectly more than 10 per cent of the voting rights attached to all outstanding equity securities.

F. Appraisers

1. The Fund shall appoint one or more independent professional appraisers to appraise the interest of the Fund in real property investments in its portfolio;

2. An appraiser must be a member of the Appraisal Institute of Canada and a recipient of the AACI (Accredited Appraiser Canadian Institute) designation and shall have had at least five years experience in appraising the type of property being appraised in the province where the property being appraised is located;

3. In general, an appraiser should not be considered to be independent if:

(a) the appraiser receives a fee from the Fund or the manager or their associates or affiliates for acting in any capacity other than as an independent professional or appraiser; or

(b) the appraiser receives a substantial portion of its annual gross income from the Fund, the manager and their associates and affiliates;

4. The Fund shall not engage as an appraiser a person or company who:

(a) is a salaried employee, director, officer or trustee of the Fund, the manager or their associates or affiliates; or

(b) has a direct or indirect material financial interest in the Fund or the manager or the real property being appraised;

5. A person or company shall not act as an appraiser of a property to be purchased or sold by the Fund or any reappraisal of a property held by the Fund where that person or company was or will be the vendor or purchaser, or the agent of the vendor or purchaser, of the property;

6. Neither the engagement of the appraiser nor the payment of the appraiser's fee shall be contingent upon the appraiser reporting a predetermined value or reaching a predetermined opinion or conclusion, nor shall the appraiser's fee be based upon its valuation conclusions; and

7. Each appraiser who has prepared an appraisal shall be named in the prospectus and the written consent of the appraiser to being so named and to the use of the appraisal shall be delivered at the time of the filing of a prospectus or pro forma renewal prospectus.

G. Appraisals

1. The Fund shall obtain from an independent professional appraiser an appraisal of the Fund's interest in each real property annually (an "annual reappraisal") effective as at each anniversary date of its acquisition or of the last annual appraisal and more frequently (an "interim reappraisal") if, in the opinion of the Board of Directors of the manager, there has been some factor or change which has materially affected the value of the property as expressed in the most recent appraisal of the property. Except as provided in paragraph 2 of section I, no adjustments shall be made to the appraisal or to the value shown for a real property unless the property has been reappraised, or costs have been incurred subsequent to the appraisal and capitalized in accordance with generally accepted accounting principles;

2. Subject to the requirement that each property be reappraised annually and that such annual reappraisal be performed on a date no later than the anniversary date of the acquisition of the property, the Fund shall not perform annual reappraisals of properties representing more than 50 per cent of the market value of the Fund's real estate portfolio in the same calendar quarter. The purpose of this prohibition is to spread the timing of reappraisals over a year in order to avoid undue fluctuations in net asset value;

3. The report to security holders which accompanies the interim financial statements of the Fund shall contain a statement, in respect of each property for which no interim reappraisal has been performed, to the effect that the Board of Directors of the manager are not aware of any factor or change which has materially affected the most recent appraisal of the property;

4. The Board of Directors of the manager and any property manager appointed to manage any of the Fund's real properties shall have a duty to inform the appraiser prior to the completion of an appraisal of any factors or changes which may affect any of the real property which is the subject of the appraisal; and

5. Appraisal reports shall be maintained with the Fund's records for a minimum of five years.

H. Appraisal and Reporting Standards

1. An appraisal report shall state the market value of the Fund's interest in the real property. For the purposes of this decision, "market value" means the most probable price in money that would be realized in an arm's length sale in an open and competitive market under conditions requisite to a fair and typical sale by a willing seller to a willing buyer, each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus;

2. An appraiser shall use relevant and accepted appraisal methods and techniques necessary to arrive at a reasoned and factually supported estimate of market value and, where the income capitalization approach is used, the appraiser shall justify in the appraisal report its selection of the capitalization rate by reference to the market at the time;

3. An appraiser's opinion of market value shall not be based upon anticipated income to be received from the property unless it can be demonstrated that it is highly probable that the anticipated income will be received;

4. In determining market value, the appraiser shall take into consideration all existing and proposed land-use regulations and other restrictions relating to the use of the real property which reasonably should be known to the appraiser and shall consider the effect which a probable change in existing land-use regulations or other restrictions may have on the value of the real property being appraised;

5. An appraiser's opinion of market value shall not be based upon the anticipated completion of a public or private improvement or undertaking, either on or off the property being appraised, unless the effect of the anticipated completion of the public or private improvement or undertaking is reflected in the market, or unless it is highly probable that such improvement or undertaking will be completed and the time of completion is taken into account;

6. In determining market value, an appraiser shall give due consideration to the effect of existing leases, mortgages, charges, and hypothecs on the value of the real property. If the appraiser has been instructed to omit consideration of such matters, the appraiser shall make specific references to that instruction in the appraisal report and shall state that the opinion of market value presumes the absence of such encumbrances;

7. In determining the market value of a leasehold interest in real property, an appraiser shall take into account all the terms and conditions of the lease and the effect of such terms and conditions on the market value of the real property;

8. An appraiser's opinion of market value shall not be based on market conditions which are highly subjective, conjectural, speculative of hypothetical in character or on the use of appraisal methodology which cannot reasonably be supported by market evidence as to the acceptance, use and applicability of such methodology by persons experienced in dealing with properties similar to that being appraised;

9. An appraiser's opinion of market value shall not be based on conditions or circumstances so limited or so special that the resulting analysis, opinions or conclusions would tend to mislead or deceive users of the appraisal report or persons relying on the opinion of market value;

10. An appraiser's opinion of market value shall not be based solely on the summation of the individual values of the various estates or fractional interests in the property and shall taken into account the effect, if any, upon such market value of the merging or combining of the various estates or fractional interests;

11. An appraisal report relating to the market value of an interest in real property that is less than the entire fee simple estate shall state that the value reported relates only to a fractional interest in the real property and that the value of such fractional interest plus the value of all other fractional interests will not necessarily be the same as the value of the entire fee simple estate considered as a whole;

12. An appraisal report shall clearly and accurately set forth all relevant information necessary to ensure that the report is properly understood and not misleading to users of the report; and

13. An appraisal report shall contain, at a minimum, the following:

(a) a statement of the specific instructions or terms of reference upon which the appraisal was performed;

(b) a statement of the purpose and function of the appraisal and the definition of market value;

(c) a description of the real property;

(d) a summary of the data upon which the appraisal is based;

(e) a statement of the estimated highest and best use of the real property;

(f) a summary of the reasons of the appraiser supporting the appraiser's opinion;

(g) a description of the appraisal methods and techniques used;

(h) the assumptions and limiting conditions upon which the appraisal is based;

(i) a description of all relevant documents used or referred to in the appraisal process (for example, major leases, cross-operating agreements, special management contracts, mortgages, etc.); and

(j) the appraiser's certification and signature.

I. Valuation of the Issuer and Units

1. The prospectus shall disclose the methods used to compute the net asset value of the Fund and the net asset value per unit. Such methods must be acceptable to the securities regulatory authorities; and

2. In determining net asset value, the value of each real property may be determined by either of the following methods (or by any other method acceptable to the securities regulatory authorities):

(A) The value of a real property on any valuation date, if prior to the first appraisal, shall be the purchase price and thereafter the market value stated in the most recent appraisal report, or

(B) The value of a real property upon any valuation date, if prior to the first appraisal, shall be the purchase price and thereafter the market value stated in the most recent appraisal report and, monthly thereafter until annual or interim reappraisal is obtained, shall be the amount determined by computing the present value of the stabilized net operating income stream at a capitalization rate acceptable in the market place at the time of valuation. Stabilized net operating income for each property shall be determined by adjusting the actual annualized net operating income to take into account abnormal current income and expense valuations and expected future changes in income and expense.

Values stated in the annual reappraisal or in any interim reappraisal shall be reflected in the net asset value commencing with the first valuation date following the anniversary date of the acquisition of a property in the case of annual reappraisals and with the first valuation date following the receipt by the fund of the interim appraisal.

J. Redemption of Units

1. Redemption shall be made no less frequently than once per calendar quarter or, if the valuation procedure described in subparagraph (B) of paragraph 2 of section I is used, no less frequently than once per month;

2. The Fund may require a request for redemption to be delivered up to one month prior to the date of the computation of net asset value upon which that redemption is based;

3. The Fund shall pay the proceeds of redemption to the security holder within 15 days of the date of the computation of net asset value upon which that redemption is based;

4. If on a redemption date the Fund is unable to redeem all units in respect of which redemption has been requested, redemptions shall be made pro rata;

5. The Fund may not suspend or delay payment for redeemed units except:

(a) if Canadian chartered banks are closed (other than weekend and holiday closings in the ordinary course of business), in which case the suspension or delay shall only be for that period of time during which such banks are closed; or

(b) with the consent of the securities regulatory authorities. No such suspension or delay in payment shall continue for more than six months from the date on which payment would otherwise have been made unless, prior to the expiry of the six-month period, the continuation of such suspension or delay has been approved by the securities regulatory authorities and by two-thirds of the votes cast at a meeting of the security holders called for that purpose. No such suspension or delay in payment shall continue for more than 12 months from the date on which payment would otherwise have been made unless, prior to the expiry of the 12-month period, the continuation of such suspension or delay has been approved by the securities regulatory authorities and by 80 per cent of the votes cast at a meeting of the security holders called for that purpose; and

6. In the event that the redemption of units is suspended or the payment for redeemed units is delayed:

(a) a security holder shall retain all rights with respect to its units, including the right to vote and to receive distributions, notwithstanding the delivery by such security holder of a request for redemption; and

(b) the redemption price payable to a security holder who has requested redemption prior to or during the period of suspension or delay shall be based upon the computation of net asset value immediately prior to the termination of such suspension or delay.

K. Fees, Commissions and Expenses

1. The payment to the manager of incentive fees based on the performance of the Fund is prohibited except that the manager may be paid a fee of not more than 25 percent of the amount by which the gain realized on a disposition of a real property exceeds 8 per cent per year (not compounded) of the total acquisition cost of the property, calculated from the time such property was acquired until the time of disposition of such property, provided that the manager's entitlement to receive its participation in the gain realized at any time shall be postponed so long as and to the extent that the aggregate acquisition cost of all of the real properties then held by the Fund exceeds the aggregate proceeds that would have been realized had all of the Fund's real properties been sold at such time at their current values;

2. No arrangement, understanding or agreement between the Fund and the manager shall provide for the payment, directly or indirectly, of any fee or penalty by the Fund or the security holders upon the termination or non-renewal of the management agreement;

3. The Board of Directors of the manager shall determine, from time to time but at least annually, that the total fees and expenses of the Fund, including the fees paid to the manager, are reasonable in light of the investment experience of the Fund, its net assets, its net income and the fees and expenses of other comparable funds and managers; and

4. The amount of all expenses, fees and commissions paid or payable, directly or indirectly, by the Fund to any person or company associated or affiliated with the Fund, the manager and the trustee, including, without limitation, property management fees, advisory fees, acquisition fees, real estate brokerage commissions, finder's fees and financing fees, and the identity of the person or company to whom such expenses, fees or commissions are paid or payable shall be disclosed in the annual financial statements;

L. Disclosure and Reporting

1. The Fund's prospectus shall:

(a) emphasize the long-term nature of an investment in units of a real estate mutual fund;

(b) state that units can be redeemed only on specified dates and only on a specified number of days prior notice and accordingly are not a suitable investment for investors who require ready convertibility of their investment into cash;

(c) state that the redemption of units may be suspended or delayed for up to six months with the consent of the securities regulatory authorities and for longer periods with the approval of security holders and the consent of the securities regulatory authorities;

(d) state and explain that the net asset value at which units are issued and redeemed is based upon appraisals of the real property; that for any given real property there is a range of market values; that an appraisal is an opinion only and that no assurance can be given that the appraised value will be equal to the price for which the property is ultimately sold;

(e) state and explain that the net asset value per unit for the purchase or redemption of units may differ from the amounts that would be paid to security holders on dissolution of the Fund;

(f) contain a statement explaining in which respects the operation of the Fund is distinguishable from the operation of mutual funds organized for the purpose of investment in equity or debt securities, including differences relating to the frequency of calculation of net asset value, the timing of payment for redeemed units and the possibility of delay or suspension of payment for redeemed units;

(g) disclose the nature and extent of the potential personal liability of each security holder;

(h) disclose the investment policies of the Fund;

(i) disclose the policies of the Fund with respect to geographic diversification of its real property investments and, if such investments are or are proposed to be concentrated in a single geographic market, the risks associated with such concentration;

(j) disclose the conflicts of interest or potential conflicts of interest of the manager and the Fund and the steps taken to avoid or minimize these conflicts;

(k) disclose the suitability standards for investors to be applied in marketing the units; and

(l) disclose for each real property of the Fund: the address, a description of the type of property, the date and cost of acquisition, the area in square feet, the percentage of leasable area actually leased, the amount of any mortgage granted or assumed and the amount of pre-tax net income generated during the previous period;

2. The Fund shall file, on a confidential basis, a schedule setting forth the appraised value of each individual property held by it as part of the annual renewal of its prospectus with the Decision Maker in each of the Jurisdictions (such schedule not to form part of the public record of the Fund);

3. The Fund shall disclose in its prospectus and in its annual and interim financial statements the aggregate value of all of the real properties held by it by region of location; and

4. The Fund shall use a long form prospectus containing any alternative disclosure to that described above as may be requested or accepted by the Manitoba Securities Commission as principal regulator of the Fund.

M. Investment Committee

1. The Fund will maintain the Investment Committee in accordance with paragraphs (vi), (vii) and (ix) of Representation number 21.

N. Sunset Provision

1. The Requested Relief will terminate one year after the coming into force, subsequent to the date of this Decision Document, of a rule or other regulation under the Legislation that relates, in whole or in part, to a mutual fund investing in real property.

"R.B. Bouchard"
Director -- Corporate Finance
The Manitoba Securities Commission

{1}Within the meaning of former OSC 11.5.