Securities Law & Instruments


Mutual fund in Ontario (non-reporting issuer) exempt from naming the issuer of certain short positions in its portfolio - must provide alternative portfolio disclosure.

Statutes Cited

National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 3.5(1), 17.1.

November 30, 2007




(N1 81-106)




(the Applicant)






(each a Fund, and collectively the Funds)




The Ontario Securities Commission (the OSC) received an application from the Applicant for a decision pursuant to section 17.1 of NI 81-106 for a decision exempting each Fund and future mutual funds managed by the Applicant which are not reporting issuers (collectively, with the Funds the GS+A Funds) from the requirement in paragraph 3.5(1)1 of NI 81-106 to include in the statements of investment portfolio prepared for the GS+A Funds the name of the issuer of the securities sold short by the GS+A Funds (the Statement of Investment Portfolio Requirement).


This Order is based on the following facts represented by the Applicant:

1. The Applicant is a corporation incorporated under the laws of Ontario. The Applicant is the manager and investment adviser of each of the Funds and will be the manager and investment adviser of any future GS+A Funds.

2. Each Fund is formed as a limited partnership under the Limited Partnerships Act (Ontario). The Funds are not reporting issuers.

3. Each Fund entitles its unitholders to redeem units after the first anniversary from the date of purchase ("One-Year Hold Period"), with 60 days prior notice. As a result of the fact that the One Year Hold Period is determined on a per-investment basis for each unitholder and the fact that there are other restrictions on redemption (such as the general partner's broad discretion to suspend or delay redemptions) that collectively result in the Fund not being redeemable "on demand", the Applicant has taken the position that the Funds are "non-redeemable investment funds" and are not currently subject to NI 81-106.

4. The Applicant proposes to shorten the One-Year Hold Period for each Fund. Given this shorter hold period, which is the biggest impediment to redemption, the Applicant is concerned that each of the Funds will become a "mutual fund" as defined under the securities legislation of Ontario and accordingly, will be subject to NI 81-106 and the financial disclosure requirements contained therein.

5. The Funds are only available to clients of the Applicant who have executed a discretionary investment management account agreement. Each of these clients either meet the definition of "accredited investor" under National Instrument 45-106 Prospectus and Registration Exemptions or qualifies under an exemption from the prospectus and registration requirements granted by the OSC.

6. As part of its investment strategy, each Fund makes extensive use of a short selling strategy pursuant to which the Applicant short sells securities it believes to be overvalued and/or have deteriorating fundamentals such as decreasing market share, sales or earnings or other negative factors. The Applicant manages the long and short positions of each Fund according to its view of the domestic and international economy and market trends, in order to seek to optimize absolute returns. The allocation of long and short positions in each Fund will vary. Short positions generally comprise approximately 30% of a Fund's portfolio of assets but may occasionally comprise up to 100% of a Fund's assets.

7. As at September 30, 2007, the Funds had an aggregate of 1,205 unitholders with $1,065,036,019 of assets.

8. Each of the Funds employs a "buy and hold" strategy with respect to its investments, meaning they do not trade in and out of positions at a high rate. Because of this strategy, short positions disclosed in the statement of portfolio assets often remain open when the financial statements are distributed, notwithstanding the 90-day and 60-day delay in distribution of the annual and interim financial statements. Expressed as a percentage of the positions which were held on the date of the statements, the number of positions of the Funds which remained opened at the time of distribution of the statements was up to 74% for the period from December 31, 2006 to March 31, 2007 and 66% for the period from June 30, 2007 to August 31, 2007.

9. Paragraph 1 of subsection 3.5(1) of NI 81-106 will require that the name of the issuer of each portfolio asset sold short be disclosed in the Funds' statements of investment portfolio.

10. The Applicant is concerned that the Statement of Investment Portfolio Requirement could cause harm to the Funds because publishing information on short positions increases the risk of predatory marketing practices, such as short squeeze initiating trades, which could cause losses to the Funds. This is especially a concern for the Funds given their size and the number of their unitholders and the buy and hold element of the Funds' short selling strategy. Once a short squeeze has been initiated, the Applicant has limited options for protecting the Funds from harm and therefore believes that relief from the Statement of Investment Portfolio Requirement as requested is the best option to protect the Funds from harm.

11. Currently, the Funds disclose, in their statements of portfolio assets, short positions by industry. The Funds also disclose: (i) the average cost and market value of the short positions; (ii) the number of issuers in each industry; and (iii) each short position as a percentage of net assets of the Fund.


The Director is satisfied that it would not be prejudicial to the public interest to grant the requested relief and orders that the GS+A Funds are exempt from the Statement of Investment Portfolio Requirement provided that for each GS+A Fund:

(i) the statement of investment portfolio discloses short positions by industry;

(ii) the statement of investment portfolio shows the average cost and market value of each industry category;

(iii) the statement of investment portfolio shows the percentage of net assets represented by short positions for each industry category;

(iv) the name of the issuer is disclosed for short positions that exceed 5% of a GS+A Fund's net assets;

(v) the financial statements for the GS+A Funds disclose the particulars of this exemption;

(vi) the offering memorandum (if any) of the GS+A Funds disclose the particulars of this exemption; and

(vii) this order terminates upon the coming into force of any legislation or rule of the OSC dealing with paragraph 3.5(1)1 of NI 81-106 or any matters relating to the disclosure of short positions by investment funds.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission