Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to an exchange traded mutual fund from certain mutual fund requirements and restrictions on borrowing and form of payment of redemptions -- Since investors will generally buy and sell shares through the TSX, requirements intended principally for conventional mutual funds in continuous distribution are largely not applicable -- requested relief would not be prejudicial to investors -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.6(a), 10.4(3), 19.1.

April 27, 2016

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 GLOBAL RESOURCE CHAMPIONS SPLIT CORP. (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the following provisions of National Instrument 81-102 Investment Funds (NI 81-102) will not apply to the Filer with respect to the offering of the Preferred Shares (as defined below) and the payment of redemption proceeds with the issuance of Debentures (as defined below) (the Exemption Sought);

1. sections 2.6(a) and 10.4(3) of NI 81-102, which respectively: (i) restricts a mutual fund in borrowing cash or providing a security interest over its portfolio assets and (ii) requires a mutual fund to pay the redemption price for securities that are the subject of a redemption order in cash or, with consent of the holder, by delivery of portfolio assets.

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

(a) the Ontario Securities 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 Alberta, British Columbia, Quebec, Nova Scotia, New Brunswick, Saskatchewan, Newfoundland and Labrador, Manitoba and Prince Edward Island.

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 Filer:

The Filer

1. The Filer is a mutual fund corporation incorporated under the Business Corporations Act (Ontario) and has its head office in Toronto, Ontario. Brookfield Investment Management (Canada) Inc. (the Manager) will be the manager of the Filer with its head office in Toronto, Ontario.

2. The Filer is a "mutual fund" under applicable securities legislation because it is an issuer of securities which entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the whole or part of the net assets of the Filer, within a specified period after demand.

3. The Filer and any other relevant party are not in default of securities legislation in any jurisdiction.

The Offering

4. The Filer will make an offering (the Offering) to the public of Class A Preferred Shares, Series 1 (the Preferred Shares) of the Filer. Concurrently with the Offering of the Preferred Shares, the Filer will issue one capital share (the Capital Shares) to Partners Value Investments Inc. (Partners Value Investments) for each Preferred Share sold. Partners Value Investments will acquire all of the Capital Shares issued.

5. The Filer intends to file a long form prospectus to be dated shortly after the date of this decision (the Prospectus) in respect of the Offering of the Preferred Shares with the securities regulatory authorities in each of the provinces of Canada.

6. The Offering is a one-time offering and the Filer will not offer the Preferred Shares on a continuous basis.

7. The proceeds of the Offering and the proceeds from the issuance of the Capital Shares will be invested in a diversified portfolio (the Portfolio) of large capitalization commodity companies that the Manager believes are best in class. The Portfolio and any cash held by the Filer will be the only material assets of the Filer.

8. The Filer is authorized to borrow money required to fund the payment of dividends on the Preferred Shares on a temporary basis and may pledge its assets as collateral for such loans. The Filer will limit this borrowing to a maximum of 5% of the Filer's net assets. This borrowing is disclosed in the Prospectus.

9. All of the Preferred Shares will be redeemed by the Filer on the date specified in the Prospectus.

The Preferred Shares

10. The Filer's investment objectives with respect to the Preferred Shares are:

(a) to provide holders of Preferred Shares with fixed cumulative preferential quarterly cash distributions in the amount set out in the Prospectus; and

(b) on the date specified in the Prospectus, to pay the holders of Preferred Shares the original issue price of $25.00 of those shares, through the redemption of each Preferred Share held on such date.

11. The Filer's investment objectives with respect to the Capital Shares are to provide their holders with a leveraged investment, the value of which is linked to changes in the market price of the Portfolio.

12. The Preferred Shares will be listed and posted for trading on the Toronto Stock Exchange (TSX).

13. The record date for quarterly distributions to holders of Preferred Shares will be the last business day of March, June, September and December in each year with payments being made on or before the 15th day of the following month.

14. The Preferred Shares will be retractable at the option of the shareholder on a monthly basis at a price computed with reference to the value of a proportionate interest in the net assets of the Filer.

15. Shares may be surrendered at any time for retraction by the Filer and shareholders will receive payment pursuant to a retraction request on the 15th day of each month (the Retraction Payment Date), provided they are surrendered at least 5 business days before last business day of the preceding month (the Retraction Valuation Date).

16. The Filer will put in place a remarketing agreement with a dealer which will provide that the dealer will use its reasonable efforts to find purchasers for any Preferred Shares tendered for retraction at a price that is not less than (after expenses) the lesser of (i) 95% of the Net Asset Value per Unit (as defined below) (ii) 95% of the trading price of the Preferred Shares or (iii) $23.75. The "Net Asset Value per Unit" on any particular day will be the net asset value of the Company on such day divided by the total number of Units outstanding. A "Unit" will consist of one Capital Share and one Preferred Share.

17. If a purchaser cannot be found for Preferred Shares tendered for retraction, subject to satisfaction of certain conditions described below, in lieu of receiving the retraction price in cash, such retracting holder of Preferred Shares will receive unsecured debentures of the Filer (the Debentures), with a principal amount equal to $25.00 for each Preferred Share tendered for retraction. Each Debenture will have an interest rate which is higher than the yield per annum on the Preferred Shares and will mature on the final redemption date for the Preferred Shares. The Debentures will be redeemable by the Filer at any time for cash. As a debt security, the Debentures will rank ahead of the Preferred Shares.

18. The Debentures will be issued in compliance with registration and prospectus requirements under the Legislation or exemption therefrom. The Debentures will not be listed on the TSX.

19. As described in the Prospectus, the issuance of Debentures by the Filer will be subject to certain terms and conditions, including a limitation that the Debentures may not be issued by the Filer if following such issuance (i) the aggregate principal amount of Debentures outstanding would be greater than 5% of the net asset value of the Filer determined as of the date of issuance, or (ii) such issuance would cause the annual income of the Company for the following year, net of expected operating expenses and interest obligations on the Debentures for that period, to fall below the amount required to pay distributions to holders of Preferred Shares, unless in either case DBRS or its successor has confirmed that such issuance would not affect the then current rating of the Preferred Shares. Accordingly, the issuance of Debentures by the Filer is not expected to have any material adverse impact on the ability of the Filer to make dividend payments to the remaining holders of Preferred Shares.

20. Holders of preferred shares that have been surrendered for retraction on the same retraction payment date will be allocated Debentures on a pro rata portion up to a maximum of 5% of the net asset value of the Filer, with the remainder of the retraction payment being satisfied in cash.

21. If the Filer cannot issue Debentures to satisfy a retraction, including if there are already Debentures outstanding representing 5% of the net asset value of the Filer, the retraction payment will be satisfied by cash in an amount equal to the lesser of (i) 95% of the Net Asset Value per Unit, (ii) 95% of the trading price of the Preferred Shares or (iii) $23.75.

22. If any Debentures are issued and outstanding, the Filer will provide investors (in the same manner as the net asset value is made available to investors as described in the Prospectus) on a monthly basis with the outstanding amount of Debentures which have been issued by the Filer as well as the par value of the outstanding Preferred Shares.

23. The Prospectus contains disclosure of the terms of the Preferred Shares, including the fact that upon retraction, if a purchaser cannot be found for the Preferred Shares tendered for retraction, such retracting holder will receive, unless the financial tests to issuance are not satisfied, Debentures as the retraction consideration. The Prospectus also contains a risk factor relating to the payment of the retraction price in Debentures that also explains that the Debentures will be illiquid investments. The Prospectus will also give holders of Preferred Shares a contractual right of rescission against the Filer in case of retractions of their Preferred Shares and will include information about the method of exercising the right and cautionary language about the limited nature of such right. The tax opinion that will be provided in the Prospectus under "Principal Canadian Federal Income Tax Considerations" will include disclosure regarding the tax implications of holding and selling Debentures. Once entered into, any trust indenture or supplemental trust indenture for the Debentures will be filed on SEDAR. Accordingly, the Prospectus contains all material disclosure pertaining to the Preferred Shares such that potential investors may make an informed decision.

24. Since the Preferred Shares will be listed on the TSX, holders of such shares will not be relying solely on the retraction privilege to provide liquidity for their investment.

25. Section 10.4(3) of NI 81-102 allows for the payment of redemption proceeds other than with cash, subject to obtaining securityholder consents. With regards to the Preferred Shares, since the Prospectus will contain all material disclosure pertaining to the Preferred Shares, an investor who purchases Preferred Shares will do so with full knowledge that they may be issued Debentures if they request a retraction of their investment in the Preferred Shares and a purchaser cannot be found to purchase such Preferred Shares. Such investor would thereby implicitly consent to the payment of retraction proceeds by the Filer with Debentures.

26. The Manager is of the view that the retraction feature is a fundamental term of the Preferred Shares and that it would be onerous to add such feature subsequent to the Offering as the Filer would incur significant additional costs in order to obtain the requisite shareholder consents and approvals.

27. As of the date hereof, Partners Value Investments is not an affiliate of the Manager or an associate of any partner, director or officer of the Filer or Manager. In addition, as of the date hereof, no substantial securityholder of the Manager has a significant interest in Partners Value Investments and no responsible person or an associate of a responsible person at the Manager is a partner, officer or director of Partners Value Investments.

28. Debentures are only issuable by the Filer upon retraction of the Preferred Shares, and the Filer will not have any control over whether any holder of Preferred Shares exercises their retraction rights and whether any purchaser can be found for Preferred Shares tendered for retraction.

29. Other than the Exemption Sought, the Filer will otherwise comply with NI 81-102.

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 Exemption Sought is granted on the following basis:

(a) section 2.6(a) of NI 81-102 -- to enable the Filer to borrow money for working capital purposes and provide a security interest over its assets, as described in paragraph 8 above, so long as the outstanding amount of any such borrowing by the Filer does not exceed 5% of the net assets of the Filer taken at market value at the time of the borrowing; and

(b) sections 2.6(a) and 10.4(3) of NI 81-102 -- to permit the Filer to pay the retraction price for the Preferred Shares in the form of Debentures, so long as the issuance of Debentures meets all terms and conditions that will be specified in the Prospectus and that the cover page of the prospectus will contain prominent disclosure indicating that, if a purchaser for Preferred Shares tendered for retraction cannot be found, a holder of Preferred Shares may receive payment in the form of Debentures rather than cash upon retraction.

"Raymond Chan"
Manager,
Investment Funds and Structured Products Branch
Ontario Securities Commission