Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from the mutual fund self-dealing restrictions in the Securities Act (Ontario) and the conflicts of interest provisions of National Instrument 31-103 Registration Requirements and Exemptions - pooled funds, including limited partnerships, to implement fund-of-fund structure - top funds and underlying funds will have the same investment fund manager and portfolio advisor -- responsible persons of portfolio advisors may also be responsible persons of underlying funds - relief granted on usual conditions for fund-of-fund relief.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b) and (c), 113.

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5(2)(a), 15.1.

December 10, 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

SW8 ASSET MANAGEMENT INC.

(the "Filer")

AND

THE TOP FUNDS

(as such term is defined below)

DECISION

Background

The Principal Regulator (as defined below) in the Jurisdiction has received an application from the Filer on its own behalf and on behalf a mutual fund to be established as by the Filer as a trust (the "First Top Fund") and any other mutual fund established and managed by the Filer after the date hereof (the "Future Top Funds" and, together with the First Top Fund, the "Top Funds") for a decision under the securities legislation of the Principal Regulator (the "Legislation") exempting the Filer and the Top Funds from:

(a) the restriction in the Legislation that prohibits a mutual fund from knowingly making and 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 security holder; or

(ii) in an issuer in which,

(1) an 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 security holder of the mutual fund, its management company or its distribution company,

has a significant interest (the "Related Issuer Relief"); and

(b) the restriction in the Legislation which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as adviser, to invest in the securities of any issuer in which a responsible person or an associate of a responsible person is a partner, officer or director, unless the fact is disclosed to the client and the written consent of the client to the investment is obtained before the purchase (the "Consent Relief");

(collectively, the "Relief Sought").

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

1. the Ontario Securities Commission is the principal regulator (the "Principal Regulator") for this application, and

2. 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 all other provinces and territories of Canada (together with the Jurisdiction, the "Jurisdictions").

Interpretation

Defined terms contained in National Instrument 31-103 -- Registration Requirements and Exemptions ("NI 31-103") and MI 11-102 have the same meanings in this decision ("Decision") unless they are otherwise defined in this Decision.

Representations

This Decision is based on the following facts represented by the Filer:

1. The Filer is a corporation existing under the laws of Canada with its head office in Toronto, Ontario.

2. The Filer is registered with the OSC as an investment fund manager, an adviser in the category of portfolio manager and a dealer in the category of exempt market dealer ("EMD"). The Filer is also registered as an EMD in British Columbia and Alberta.

3. The Filer is not a reporting issuer in any jurisdiction and is not in default of securities legislation of any jurisdiction of Canada.

4. Each Top Fund is or will be organized under the laws of Ontario is or will be a "mutual fund" for the purposes of the Legislation.

5. Subject to obtaining the Relief Sought, the First Top Fund will invest all or substantially all of its assets in SW8 Strategy Fund LP (the "First Underlying Fund"), a limited partnership established under the laws of Ontario. Securities of the First Underlying Fund are not eligible for investment by tax-free savings accounts ("TFSAs") and trusts governed by registered retirement savings plans, registered retirement income funds, registered education savings plans and deferred profit sharing plans and registered disability savings plans (collectively, "Tax Deferred Plans"), each as defined in the Income Tax Act (Canada).

6. The investment objective of the First Top Fund will be to replicate the performance of the First Underlying Fund to the extent possible. Additionally, unlike the First Underlying Fund, it is intended that securities of the First Top Fund will be eligible for investment by TFSAs and Tax Deferred Plans.

7. Subject to obtaining the Relief Sought, any Future Top Funds may invest all, or less than all, of their assets in the First Underlying Fund, as well as in other investment funds established and managed by the Filer after the date hereof (the "Future Underlying Funds" and, together with the First Underlying Fund, the "Underlying Funds").

8. The Filer is or will be the investment fund manager and portfolio manager of each of the Top Funds and Underlying Funds (collectively, the Funds). As such, the Filer is or will be responsible for managing the assets of the Funds.

9. Each Fund is not or will not be a reporting issuer in any of the Jurisdictions. Securities of the Funds will be offered only to qualified investors pursuant to available exemptions from the prospectus requirements in Canadian securities legislation.

10. The Top Funds will allow investors to obtain exposure to the investment portfolios of the Underlying Funds and their investment strategies through, primarily, direct investment by the Top Funds in securities of the Underlying Funds (the "Fund-on-Fund Structure"). The Underlying Funds may not be eligible investment for TFSAs and Tax Deferred Plans. The Filer believes that the Fund-on-Fund Structure will provide the Top Funds with a more efficient and cost-effective means of pursuing portfolio diversification and will allow investors of the Top Funds to access the performance of the Underlying Funds through TFSAs and Tax Deferred Plans.

11. The amounts invested from time to time in an Underlying Fund by one or more of the Top Funds may exceed 20% of the outstanding voting securities of any single Underlying Fund. Accordingly, each Top Fund could, either alone or together with other Top Funds, become a substantial security holder of an Underlying Fund.

12. No Underlying Fund will also be a Top Fund.

13. The Fund-of-Fund Structure may also result in a situation where one or more officers or directors of the Filer (considered a 'responsible person' within the meaning of the Legislation) is or may also be an officer, director or partner of an Underlying Fund, including for greater certainty, an officer and/or director of the general partner of the Underlying Fund, or a limited partner of the Underlying Fund, where the Underlying Fund is a partnership.

14. In connection with the proposed Fund-on-Fund Structure, the Filer will ensure that:

(a) securities of a Top Fund are distributed in Canada solely pursuant to exemptions from the prospectus requirement in Canadian securities legislation;

(b) the investment by a Top Fund in an Underlying Fund is compatible with the fundamental investment objectives of the Top Fund;

(c) no management fees or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;

(d) no sales fee or redemption fees are payable by a Top fund in relation to its purchases or redemptions of securities of an Underlying Fund;

(e) upon request, a securityholder of a Top Fund may obtain a copy of the financial statements of the Underlying Funds in which the Top Fund is invested;

(f) a Top Fund does not vote the securities of an Underlying Fund held by the Top Fund, although it may arrange for the securities of an Underlying Fund it holds to be voted by the beneficial owners of the securities of the Top Fund;

(g) investors in a Top Fund will be provided written disclosure that discloses:

(i) that a Top Fund may purchase securities of the Underlying Funds;

(ii) that the Filer is the investment adviser and manager of both the Top Fund and the Underlying Funds;

(iii) that substantially all of the net assets or a percentage or range of percentages of net assets of the Top Fund that may be invested in securities of the Underlying Funds; and

(h) the offering memoranda, if any, of the Underlying Funds will be made available to securityholders of the applicable Top Fund(s) upon request.

15. In the absence of the Relief Sought, the Top Funds would be precluded from implementing the Fund-on-Fund Structure due to certain investment restrictions contained in the Legislation.

16. The Fund-on-Fund Structure represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the prospective investors in the Top Funds.

Decision

17. The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

18. The decision of the principal regulator under the Legislation is granted.

19. The decision of the principal regulator under the Legislation is that the Related Issuer and Consent Relief are granted provided that:

(a) securities of a Top Fund are distributed in Canada solely pursuant to exemptions from the prospectus requirement in Canadian securities legislation;

(b) the investment by a Top Fund in an Underlying Fund is compatible with the fundamental investment objectives of the Top Fund;

(c) no management fees or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by an Underlying Fund for the same service;

(d) no sales fee or redemption fees are payable by a Top fund in relation to its purchases or redemptions of securities of an Underlying Fund;

(e) upon request, a securityholder of a Top Fund may obtain a copy of the financial statements of the Underlying Funds in which the Top Fund is invested;

(f) a Top Fund does not vote the securities of the Underlying Fund held by the Top Fund, except that the Top Fund may, if the Filer chooses, arrange for the securities it holds of any Underlying Fund to be voted by the beneficial holders of securities of the Top Fund;

(g) investors in a Top Fund will be provided written disclosure that discloses:

(i) that a Top Fund may purchase securities of the Underlying Funds;

(ii) that the Filer is the investment adviser and manager of both the Top Fund and the Underlying Funds;

(iii) that substantially all of the net assets or a percentage or range of percentages of net assets of the Top Fund that may be invested in securities of the Underlying Funds; and

(h) the offering memoranda, if any, of the Underlying Funds will be made available to securityholders of the applicable Top Fund(s) upon request.

The Consent Relief

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

The Related Issuer Relief

"Paulette L. Kennedy"
Commissioner
Ontario Securities Commission
 
"Kevin J. Kelly"
Commissioner
Ontario Securities Commission