Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to a commodity pool from paragraph 2.5(2)(a) and (c) of National Instrument 81-102 Mutual Funds to permit a commodity pool to gain exposure to another commodity pool implementing a two tiered structure, subject to certain conditions. The underlying commodity pool is not subject to National Instrument 81-101 Mutual Fund Prospectus Disclosure, and not qualified for distribution. The underlying commodity pool is a reporting issuer pursuant to a non-offering prospectus filed.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(a), (c), 19.1.

March 5, 2010

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

SMC MAN AHL ALPHA FUND

(the "Filer")

AND

IN THE MATTER OF

SMC AHL HOLDINGS LTD.

(the "Trustee")

AND

IN THE MATTER OF

SCOTIA MANAGED COMPANIES

ADMINISTRATION INC.

(the "Administrator")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Administrator, on behalf of the Filer, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for exemptive relief (the "Requested Relief") from paragraphs 2.5(2)(a) and (c) of National Instrument 81-102 -- Mutual Funds ("NI 81-102") to permit the Filer to invest indirectly in securities of the AHL Investment Strategies SPC -- Class C AHL Alpha CAD Notes (the "AHL SPC Class C").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application),

(a) the Ontario Securities Commission (the "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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon (the "Passport Jurisdictions").

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Trustee and the Administrator on behalf of the Filer:

1. The Filer is an investment trust established under the laws of the Province of Ontario pursuant to a declaration of trust.

2. The Trustee is the trustee of the Filer. The Trustee is responsible for, among other things, managing and supervising the business, operations and affairs of the Filer. The Trustee has retained the Administrator to administer the ongoing business, operations and affairs of the Fund. The principal office of each of the Trustee and the Administrator is located at 40 King Street West, 26th Floor, P.O. Box 4085, Station A, Toronto, Ontario M5W 2X6.

3. The Filer filed the preliminary prospectus dated December 23, 2009 (the "Preliminary Prospectus") on SEDAR (the System for Electronic Document Analysis and Retrieval, found at www.sedar.com) with respect to the proposed offering (the "Offering") of Class A Units and Class F Units (together, the "Units") of the Filer, a receipt for which was issued by the Commission on December 23, 2009.

4. The Filer is a commodity pool as such term is defined in section 1.1 of National Instrument 81-104 -- Commodity Pools ("NI 81-104"), in that the Filer has adopted fundamental investment objectives that permit the Filer to gain exposure to or use or invest in specified derivatives in a manner that is not permitted under NI 81-102.

5. The Filer is subject to NI 81-102, NI 81-104 and the Securities Act (Ontario) (the "Ontario Act"), subject to any exemptions therefrom that may be granted by securities regulatory authorities. NI 81-104 also grants exemptions from certain investment restrictions of NI 81-102 to commodity pools.

6. The Filer's investment objective is to provide holders of Units (the "Unitholders") with the opportunity to realize capital appreciation through investment returns that have a low correlation to traditional forms of stock and bond securities. The investment objective of the Filer, as well as its investment strategy, are disclosed in the Preliminary Prospectus.

7. To pursue its investment objective, the Filer will obtain exposure to a diversified portfolio of financial instruments across a range of global markets including currencies, bonds, stocks, agriculturals, energy, metals and short-term interest rates (the "AHL Portfolio") using a multi-strategy and predominantly trend-following trading program (the "AHL Alpha Programme") that employs futures, options, forward contracts, swaps and other financial derivative instruments.

8. The Filer will obtain exposure to the AHL Portfolio through one or more forward purchase and sale agreements (collectively, the "Forward Agreement") to be entered into with one or more Canadian chartered banks and/or their affiliates (collectively, the "Counterparty").

9. The return to the Filer, and consequently to Unitholders, will by virtue of the Forward Agreement be referable to the return of Canadian dollar denominated redeemable Class C AHL Alpha CAD notes (the "AHL SPC Notes") proposed to be issued by the AHL SPC Class C in respect of the AHL Portfolio. The aggregate value at any time of the outstanding AHL SPC Notes will equal the aggregate net asset value of the AHL Portfolio.

10. The maximum exposure of a Unitholder to the AHL SPC Notes will be the amount invested by the Unitholder in the Filer. However, investment exposure to the AHL SPC Notes does not constitute a direct investment in the AHL Portfolio. Unitholders will not own AHL SPC Notes nor the assets held by the AHL Portfolio directly.

11. The AHL SPC Class C will establish and maintain the AHL Portfolio. The AHL SPC Class C is a segregated portfolio established by AHL Investment Strategies SPC (the "AHL SPC"), a segregated portfolio company incorporated with limited liability in the Cayman Islands and registered as a segregated portfolio company under the Companies Law (2007 Revision). The assets of the AHL Portfolio will be managed by Man Investments Limited (the "Investment Manager").

12. The Investment Manager is a company incorporated in England and Wales with limited liability (No. 2093429) whose registered address is Sugar Quay, Lower Thames Street, London EC3R 6DU, and is regulated in the conduct of regulated activities in the United Kingdom by the Financial Services Authority of the United Kingdom.

13. The AHL SPC Class C has filed and obtained a receipt for a final prospectus dated April 29, 2009 from the Commission and the Autorité des marchés financiers, pursuant to which it became a reporting issuer under the Ontario Act and the Securities Act (Québec). Accordingly, the financial statements and other reports required to be filed by the AHL SPC Class C are available through SEDAR.

14. The AHL SPC Class C is a commodity pool as such term is defined in section 1.1 of NI 81-104. The AHL SPC Class C is subject to the investment restrictions and practices contained in applicable Canadian securities legislation, including NI 81-102 and NI 81-104, and the AHL Portfolio will be managed in accordance with these restrictions and practices, subject to any exemptions therefrom that may be granted by securities regulatory authorities; however, the AHL SPC Class C is a mutual fund that is not subject to National Instrument 81-101 -- Mutual Fund Distributions and its securities are not qualified for distribution in the local jurisdiction, as required by the provisions of paragraphs 2.5(2)(a) and (c) of NI 81-102.

15. The exposure of the Filer to securities of the AHL SPC Class C will be made in accordance with the provisions of section 2.5 of NI 81-102, except for the Requested Relief.

16. The Filer does not intend to list the Units on any stock exchange. Units of each class may be redeemed on a weekly basis for a redemption price equal to 100% of the NAV per Unit of that class less, if applicable, the redemption fee payable in connection with early redemptions of Units, subject to the Filer's right to suspend redemptions in certain circumstances.

17. None of the Trustee, the Administrator, the Filer or the AHL SPC Class C is in default of any securities legislation in any of the Jurisdictions.

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 Requested Relief is granted provided that:

(a) the Filer and the AHL SPC Class C are commodity pools subject to NI 81-102 and NI 81-104;

(b) the exposure of the Filer to securities of the AHL SPC Class C is in accordance with the fundamental investment objectives of the Filer;

(c) the Preliminary Prospectus discloses and the final prospectus of the Filer does disclose that the Filer will obtain exposure to securities of the AHL SPC Class C and, to the extent applicable, the risks associated with such an investment;

(d) the AHL SPC Class C is a reporting issuer subject to National Instrument 81-106 -- Investment Fund Continuous Disclosure;

(e) no securities of the AHL SPC Class C are distributed in Canada other than to the counterparty under a forward agreement pursuant to which exposure is obtained to the AHL SPC Class C; and

(f) the indirect investment by the Filer in securities of the AHL SPC Class C is made in compliance with each provision of section 2.5 of NI 81-102, except paragraphs 2.5(2)(a) and (c) of NI 81-102.

"Darren McKall"
Assistant Manager, Investment Funds
Ontario Securities Commission