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 in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to allow a trust to invest all or substantially all of its net assets in a partnership that is under common management -- relief subject to certain conditions.

Applicable Legislative Provisions

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

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

November 22, 2013

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
TIMELO INVESTMENT MANAGEMENT INC.
(the Filer)

AND

TIMELO STRATEGIC OPPORTUNITIES FUND
(the Trust)

AND

TIMELO STRATEGIC OPPORTUNITIES FUND LP
(the Partnership)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on its own behalf and on behalf of the Trust and the Partnership for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer, the Trust and the Partnership from:

(a) the restriction in the Legislation prohibiting a mutual fund from knowingly making and holding an investment in any person or company in which the mutual fund, alone or together with one or more related mutual funds, is a "substantial securityholder" (within the meaning of the Legislation) (the Related Issuer Relief);

(b) the requirement in the Legislation requiring a management company or a mutual fund manager, to file a report of every transaction of purchase and sale of securities between a mutual fund it manages and any related person or company and any transaction in which, by arrangement other than an arrangement related to insider trading of portfolio securities, a mutual fund is a joint participant with one of more of its related persons or companies, in respect of each mutual fund to which the management company provides services or advice, within 30 days after the end of the month in which it occurs (the Reporting Requirement Relief); and

(c) the restriction in the Legislation prohibiting 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" (within the meaning of the Legislation) 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, and together with the Related Issuer Relief and the Reporting Requirement Relief, the Requested Relief).

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

(a) the Ontario Securities Commission (the OSC) 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 each of the provinces and territories of Canada, (collectively, the Other Jurisdictions).

Interpretation

Unless otherwise defined herein, terms defined in National Instrument 14-101 Definitions, National Instrument 81-102 -- Mutual Funds (NI 81-102) and MI 11-102 have the same meaning if used in this decision.

Representations

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

The Filer

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

3. The Filer will be the investment fund manager of the Trust and the Partnership.

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

The Trust

5. The Trust will be organized as a trust under the laws of the Province of Ontario, the securities of which will be offered for sale on a private placement basis pursuant to prospectus exemptions under National Instrument 45-106 -- Prospectus and Registration Exemptions ("NI 45-106") in Canada.

6. The Trust will be a "mutual fund" under applicable Canadian securities legislation.

7. The Trust will not be a reporting issuer in any jurisdiction of Canada and is not in default of any securities legislation of any jurisdiction of Canada.

The Partnership

8. The Partnership is organized as a limited partnership under the laws of the Province of Ontario. The general partner of the Partnership is Strategic Opportunities GP Inc. (the General Partner), an affiliate of the Filer and the Trust.

9. The General Partner has contributed $10.00 towards the capital of the Partnership and does not intend to contribute any other capital to the Partnership.

10. Other than the General Partner, the Trust will be the sole securityholder of the Partnership.

11. The Partnership will be a "mutual fund" under applicable Canadian securities legislation.

12. The Partnership is not and will not be a reporting issuer in any jurisdiction of Canada and is not in default of any securities legislation of any jurisdiction of Canada.

Trust on Partnership Structure

13. The investment objective of the Trust is to maximize return on investment to its securityholders while seeking to mitigate market risk and volatility. The Trust intends to achieve its investment objective by investing all or substantially all of its net assets in the Partnership.

14. An investment by the Trust in securities of the Partnership will be compatible with the investment objective of the Trust.

15. Securities of the Partnership will not be 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 theIncome Tax Act (Canada) (the Tax Act).

16. The Filer intends that securities of the Trust will be eligible for investment by TFSAs and Tax Deferred Plans by qualifying as a "mutual fund trust" under the Tax Act. This would allow investors of the Trust to benefit from making an election under the Tax Act.

17. The limited partnership structure of the Partnership provides for distributions to an affiliate of the Filer in respect of incentive allocations. An incentive allocation is common with limited partnership structures but cannot be replicated with a mutual fund trust structure on a tax-efficient basis.

Investments by the Partnership in Underlying Mutual Funds

18. The Partnership may invest in other mutual funds that are not managed by the Filer or its affiliates (the Underlying Mutual Funds) to achieve its investment objective. For certainty, the Partnership will not invest in any mutual funds other than the Underlying Mutual Funds.

19. An investment by the Partnership in securities of the Underlying Mutual Funds will be compatible with the investment objective of the Partnership.

20. The Partnership will not purchase or hold securities of an Underlying Mutual Fund if the Underlying Mutual Fund holds more than 10% of its net asset value, directly or indirectly, in securities of other mutual funds (other than an Underlying Mutual Fund that is a "clone fund" or holds securities of a "money market fund", or that are "index participation units" issued by a mutual fund, in each case as defined under NI 81-102).

21. No management fees or incentive fees will be payable by (i) the Trust that, to a reasonable person, would duplicate a fee payable by the Partnership for the same service; or (ii); the Partnership that, to a reasonable person, would duplicate a fee payable by the Underlying Mutual Fund for the same service.

22. No sales fees or redemption fees will be payable by (i) the Trust in relation to its purchases or redemptions of securities of the Partnership; or (ii) Partnership in relation to its purchases or redemptions of securities of the Underlying Mutual Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Partnership, other than brokerage fees incurred for the purchase or sale of an "index participation unit" issued by a mutual fund.

23. The Filer will not vote any securities of the Partnership held by the Trust. However, the Filer may, if it so chooses, arrange for the securities that the Trust holds of the Partnership to be voted by the beneficial holders of securities of the Trust.

24. The offering memorandum of the Trust will be provided to all investors in the Trust prior to the time of purchase, and will disclose that:

(a) the Trust will purchase securities of the Partnership;

(b) the Filer is the investment fund manager of the Trust and the Partnership;

(c) the Trust will invest all or substantially all of its net assets in the Partnership;

(d) the relationship and potential conflicts of interest between the Trust and the Partnership.

25. Securityholders of the Trust will receive, on request, a copy of the Trust's audited annual and unaudited interim financial statements.

26. The investment by the Partnership in the Underlying Mutual Funds will represent the business judgment of "responsible persons" (within the meaning of the Legislation) uninfluenced by considerations other than the best interests of the prospective investors in the Trust.

27. The Trust and the Partnership will generally have matching redemption dates.

Generally

28. Since the Trust and the Partnership do not offer their securities under a simplified prospectus, they are not subject to NI 81-102. Therefore, the Trust and the Partnership are unable to rely upon the exemption from mutual fund conflict of interest investment restrictions and the mutual fund conflict of interest reporting requirements codified under subsection 2.5(7) of NI 81-102.

29. In the absence of the Related Issuer Relief, the Trust would be precluded from investing all or substantially all of its net assets in the Partnership due to certain investment restrictions in the Legislation.

30. In the absence of the Consent Relief, the Trust would be precluded from investing in the Partnership unless the specific fact is disclosed to securityholders of the Trust and the written consent of the securityholders of the Trust to the investment is obtained before the purchase.

31. In the absence of the Reporting Requirement Relief, the Filer would be required to file a report on every purchase or sale of securities of the Partnership by the Trust.

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 so long as:

(a) securities of the Trust are distributed in Canada solely pursuant to exemptions from the prospectus requirement under NI 45-106;

(b) an investment by the Trust in securities of the Partnership, and an investment by the Partnership in securities of an Underlying Mutual Fund will be compatible with the investment objective of the Trust and the Partnership, respectively;

(c) no management fees or incentive fees will be payable by (i) the Trust that, to a reasonable person, would duplicate a fee payable by the Partnership for the same service; or (ii); the Partnership that, to a reasonable person, would duplicate a fee payable by the Underlying Mutual Fund for the same service;

(d) no sales fees or redemption fees will be payable by (i) the Trust in relation to its purchases or redemptions of securities of the Partnership; or (ii) Partnership in relation to its purchases or redemptions of securities of the Underlying Mutual Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Partnership, other than brokerage fees incurred for the purchase or sale of an "index participation unit" issued by a mutual fund;

(e) the Filer will not vote any securities of the Partnership held by the Trust. However, the Filer may, if it so chooses, arrange for the securities that the Trust holds of the Partnership to be voted by the beneficial holders of securities of the Trust;

(f) the Partnership will not purchase or hold securities of an Underlying Mutual Fund if the Underlying Mutual Fund holds more than 10% of its net asset value, directly or indirectly, in securities of other mutual funds (other than an Underlying Mutual Fund that is a "clone fund" or holds securities of a "money market fund", or that are "index participation units" issued by a mutual fund, in each case as defined under NI 81-102);

(g) the offering memorandum of the Trust will be provided to all investors of the Trust prior to the time of purchase, and will disclose that:

(i) the Trust will purchase securities of the Partnership;

(ii) the Filer is the investment fund manager of the Trust and the Partnership; and

(iii) the Trust will invest all or substantially all of its net assets in the Partnership.

"Raymond Chan"
Manager, Investment Funds Branch
Ontario Securities Commission
 
"Alan Lenczner"
Commissioner
Ontario Securities Commission
 
"Sarah B. Kavanagh"
Commissioner
Ontario Securities Commission