Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief granted from the investment fund self-dealing restrictions in the Securities Act (Ontario) and National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to allow pooled funds to invest substantially all of their assets in securities of one underlying pooled fund under common management, and to allow such underlying pooled funds to invest in multiple other underlying pooled funds under common or third party 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(4), 113.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(a), 15.1.

September 30, 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
PERFORMANCE CAPITAL LIMITED
(the Filer)

AND

IN THE MATTER OF
THE TOP TRUSTS
(as defined below)

AND

IN THE MATTER OF
THE TOP FUNDS
(as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Filer, its affiliates, Performance Balanced Trust (the Initial Top Trust), any other trust that is not a reporting issuer in any jurisdiction of Canada that may be advised or managed by the Filer or its affiliate in the future that invests in a Top Fund (as defined below) (the Future Top Trusts and, together with the Initial Top Trust, the Top Trusts), Performance Balanced Fund (the Initial Top Fund) and any other investment fund that is not a reporting issuer in any jurisdiction of Canada that may be advised or managed by the Filer or its affiliate in the future that invests in an Underlying Fund (as defined below) (the Future Top Funds and, together with the Initial Top Fund, the Top Funds) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer, its affiliates, the Top Trusts with respect to each of the Top Trusts’ investment in a single Top Fund and the Top Funds with respect to each of the Top Funds’ investment in one or more investment funds that are not a reporting issuer in any jurisdiction of Canada (the Underlying Funds) from:

(a)           the restriction in the Legislation that prohibits an investment fund from knowingly making an investment in a person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial securityholder; and

(b)           the restriction in the Legislation that prohibits an investment fund, its management company or its distribution company, from knowingly holding an investment described in paragraph (a) above

(collectively, the Related Issuer Relief); and

(c)           the restriction contained in subsection 13.5(2)(a) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase a security of an 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 purchase is obtained before the purchase

(the Consent Requirement Relief, and together with the Related Issuer Relief, the Exemption Sought).

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 the provinces of British Columbia, Alberta, Manitoba and Nova Scotia (together with Ontario, the 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 Filer:

The Filer

1.             The Filer is a corporation incorporated under the laws of the Province of Ontario and has its head office in Toronto, Ontario.

2.             The Filer is registered in the categories of investment fund manager, portfolio manager and exempt market dealer in Ontario, and in the category of exempt market dealer under the applicable securities legislation in the provinces of Alberta, British Columbia, Manitoba and Nova Scotia.

3.             The Filer is not a reporting issuer in any jurisdiction of Canada and is not in default of securities legislation of any jurisdiction in Canada except in respect of the requirement to obtain written consent from securityholders of the Initial Top Trust in connection with the investment by the Initial Top Trust in the Initial Top Fund.

4.             The Filer is the investment fund manager and portfolio manager of the Initial Top Trust and the Initial Top Fund. The Filer, or its affiliate, will be the investment fund manager and portfolio manager of the Future Top Trusts, Future Top Funds and Filer Managed Underlying Funds (as defined below).

Top Trusts

5.             The Initial Top Trust is an open-ended mutual fund trust established under the laws of Ontario.

6.             Each Future Top Trust will be an open-ended mutual fund trust established under the laws of Ontario or another jurisdiction of Canada.

7.             In Canada, securities of the Initial Top Trust are, and securities of the Future Top Trusts will be, sold to investors solely on a private placement basis pursuant to available prospectus exemptions in accordance with applicable securities legislation.

8.             Each of the Top Trusts is or will be an “investment fund” for the purposes of the Legislation.

9.             The Top Trusts are not, and will not be, reporting issuers in any jurisdiction of Canada.

10.          The Initial Top Trust currently invests substantially all of its assets in securities of the Initial Top Fund. Each of the Future Top Trusts will invest substantially all of its assets in a single Future Top Fund.

11.          The Initial Top Trust is not in default of securities legislation of any jurisdiction of Canada, except that the Initial Top Trust is currently a substantial securityholder of the Initial Top Fund.

Top Funds

12.          The Initial Top Fund is an open-ended mutual fund formed as a limited partnership under the laws of Ontario by a declaration of limited partnership.

13.          Each Future Top Fund will be an open-ended mutual fund formed as a limited partnership under the laws of Ontario or another jurisdiction of Canada.

14.          In Canada, securities of the Initial Top Fund are, and securities of the Future Top Funds will be, sold to investors solely on a private placement basis pursuant to available prospectus exemptions in accordance with applicable securities legislation.

15.          Each of the Top Funds is or will be an “investment fund” for the purposes of the Legislation.

16.          The Top Funds are not, and will not be, reporting issuers in any jurisdiction of Canada.

17.          The Initial Top Fund primarily invests in multiple Underlying Funds that are managed and advised by third parties (the Third Party Underlying Funds), but may also invest in equity and equity-related securities of private and public issuers as well as Underlying Funds that are managed and advised by the Filer or its affiliate (the Filer Managed Underlying Funds).

18.          The Future Top Funds will invest in a combination of Third Party Underlying Funds, Filer Managed Underlying Funds and other assets and securities but will not invest substantially all of its assets in securities of a single Underlying Fund.

19.          Each of the Top Funds has, or will have, separate investment objectives, strategies and/or restrictions.

20.          Each Top Fund has, or will have, other investors in addition to its corresponding Top Trust.

21.          The Initial Top Fund is not in default of securities legislation of any jurisdiction of Canada.

Underlying Funds

22.          The Underlying Funds are, and will be, open-ended mutual funds. The current Underlying Funds of the Initial Top Fund are funds formed under the laws of Ontario or another jurisdiction of Canada and a Cayman Islands exempted company. Each future Underlying Fund will be a fund formed under the laws of a jurisdiction of Canada or a jurisdiction outside of Canada.

23.          In Canada, securities of an Underlying Fund have been, and will be, acquired by a Top Fund pursuant to available prospectus exemptions in accordance with applicable securities legislation.

24.          Each of the Underlying Funds is or will be an “investment fund” for the purposes of the Legislation.

25.          The Underlying Funds are not, and will not be, reporting issuers in any jurisdiction of Canada.

26.          The portfolios of each of the Underlying Funds consist, or will consist, primarily of publicly traded securities.

27.          Each Underlying Fund does not, and will not, invest in securities of other investment funds. As a result, the investment structure by which a Top Trust invests, or will invest, substantially all of its assets in securities of the Top Fund, which in turn invests, or will invest, in multiple Underlying Funds (the Three Tier Fund-on-Fund Structure), does not, and will not, result in more than three tiers of investment funds.

28.          Each of the Underlying Funds has, or will have, separate investment objectives, strategies and/or restrictions.

29.          Each Underlying Fund has, or will have, other investors in addition to its corresponding Top Fund.

Three Tier Fund-on-Fund Structure

30.          The purpose of the Top Funds investing in multiple Underlying Funds, of which the majority will be Third Party Underlying Funds (the Bottom Fund-on-Fund Structure), is to create a diversified, multi-manager portfolio of externally managed hedge funds. This fund-on-fund structure provides investors with exposure to a portfolio that they may not otherwise be able to invest in or replicate on their own due to costs or a lack of expertise.

31.          The purpose of layering a Top Trust on top of the Bottom Fund-on-Fund Structure, resulting in the Three Tier Fund-on-Fund Structure, is to provide exposure to the Bottom Fund-on-Fund Structure to investors that may not be able to, for tax reasons, or may not wish to, invest directly in a limited partnership. The Initial Top Trust is, and each Future Top Trust will be, organized as a trust, securities of which may be qualified investments under the Income Tax Act (Canada) (the Tax Act) and the regulations promulgated thereunder for trusts governed by tax-free savings accounts, registered retirement savings plans, registered retirement income funds, registered education savings plans, defined profit sharing plans and registered disability savings plans.

32.          The Three Tier Fund-on-Fund Structure involving Future Top Trusts, Future Top Funds and Underlying Funds will be structured similarly to the current Three Tier Fund-on-Fund Structure of the Initial Top Trust, the Initial Top Fund and Underlying Funds.

33.          An investment by a Top Trust in a Top Fund or a Top Fund in an Underlying Fund has been, and will be, effected in accordance with and subject to the investment objectives, investment strategies, investment restrictions, risk profile and other principal terms of the Top Trust or Top Fund, as applicable.

34.          Each Top Fund may have other investors in addition to its corresponding Top Trust. The Top Funds and Underlying Funds are, and will be, available for investment by investors that do not have a relationship with the Filer or its affiliates.

35.          Each of the Top Trusts functions, or will function, as a “clone fund” (as such term is defined in National Instrument 81-102 Investment Funds (NI 81-102)) of its corresponding Top Fund and complies, or will comply, with the following requirements:

(a)           the name of such Top Trust includes, or will include, part of the name of its corresponding Top Fund;

(b)           the investment objectives of such Top Trust names, or will name, the particular Top Fund whose performance the Top Trust seeks to track and the fact that the Top Trust seeks to achieve a return similar to the return of such Top Fund; and

(c)           the offering memorandum of such Top Trust discloses, or will disclose:

(i)            in the investment objectives of such Top Trust, the name of the particular Top Fund whose performance the Top Trust seeks to track and the fact that the Top Trust seeks to achieve a return similar to the return of such Top Fund; and

(ii)           in the description of the investment strategies of such Top Trust, the investment strategies of the applicable Top Fund whose performance the Top Trust seeks to track.

36.          Securities of the Top Funds and the Underlying Funds are, or will be, considered to be liquid assets. To the extent illiquid assets (as defined in NI 81-102) are held by a Top Fund or an Underlying Fund, such illiquid assets comprise, or will comprise, 10% or less of the net asset value (NAV) of such Top Fund or Underlying Fund.

37.          An investment by a Top Trust in a Top Fund has been, or will be, effected based on the objective NAV of the Top Fund. An investment by a Top Fund in an Underlying Fund has been, or will be, effected based on the objective NAV of the Underlying Fund.

38.          The Filer does not expect that the assets directed to any Third Party Underlying Fund’s manager by the Filer and its affiliates exceed, or will exceed, 20% of the assets under management of such manager.

39.          The assets of each Top Trust and each Top Fund, to the extent that such Top Trust or Top Fund holds, or will hold, securities other than securities of a Top Fund or an Underlying Fund, as applicable, are, or will be, held by a custodian that meets the qualifications of section 6.2 of NI 81-102 (for assets held in Canada) or a custodian that meets the qualifications of section 6.3 of NI 81-102 (for assets held outside Canada), except that such custodian’s financial statements may not be publicly available.

40.          The assets of each Underlying Fund are, or will be, held by a custodian that meets the qualifications of section 6.2 of NI 81-102 (for assets held in Canada) or a custodian that meets the qualifications of section 6.3 of NI 81-102 (for assets held outside Canada), except that such custodian’s financial statements may not be publicly available.

41.          The Filer has ensured, and the Filer or its affiliate will continue to ensure, that no management fees or incentive fees are payable by a Top Trust or Top Fund, as applicable, that, to a reasonable person, would duplicate a fee payable by a Top Fund or Underlying Fund, as applicable, for the same service.

42.          No Top Trust pays or will pay management or incentive fees to the Filer or its affiliates that, to a reasonable person, would duplicate a fee payable by a Top Fund or Underlying Fund, as applicable, for the same service. The Initial Top Trust pays no management or incentive fees to the Filer or its affiliates while the Initial Top Fund pays a management fee and may pay an incentive fee to the Filer or its affiliates. In each future Three Tier Fund-on-Fund Structure, management and incentive fees may be paid to the Filer by either the Top Trust or Top Fund but in no circumstances will (a) management fees be paid by both the Top Trust and the Top Fund or (b) incentive fees be paid by both the Top Trust and the Top Fund.

43.          Each Underlying Fund pays, or will pay, a management fee and may pay an incentive fee to its manager. As such, investors in the Top Trusts and the Top Funds indirectly pay, or will pay, the management and, if applicable, incentive fee of the manager of the Underlying Fund. The fees paid to each manager of an Underlying Fund for portfolio management services in respect of the Underlying Fund are not, and will not be, duplicative of the management and incentive fees that investors are paying to the Filer or its affiliate for determining the overall asset allocation of the Top Fund. As such, no Top Fund pays, or will pay, management or incentive fees to the Filer or its affiliates that, to a reasonable person, would duplicate a fee payable by the Underlying Fund for the same service.

44.          No sales fees or redemption fees are, and will be, payable by a Top Trust in relation to its purchases or redemptions of securities of a Top Fund. No sales fees or redemption fees are, and will be, payable by a Top Fund in relation to its purchases or redemptions of securities of a Filer Managed Underlying Fund. No sales fees or redemption fees are, and will be, payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Trust or Top Fund.

45.          The Filer has not, and the Filer or its affiliate will not, cause the securities of a Top Fund held by a Top Trust to be voted at any meeting of the securityholders of any Top Fund, except that the Filer or its affiliate may arrange for the securities of the Top Fund held by the Top Trust to be voted by the beneficial holders of securities of the Top Trust.

46.          The Filer has not, and the Filer or its affiliate will not, cause the securities of a Filer Managed Underlying Fund held by a Top Fund to be voted at any meeting of the securityholders of any Filer Managed Underlying Fund, except that the Filer or its affiliate may arrange for the securities of the Filer Managed Underlying Fund held by the Top Fund to be voted by (a) the beneficial holders of securities of the Top Fund except for a Top Trust and (b) with regard to the securities of the Filer Managed Underlying Fund beneficially owned by the Top Trust, the beneficial holders of securities of the Top Trust.

47.          The frequency of valuation of each Top Trust mirrors, or will mirror, the frequency of valuation of the Top Fund in which it invests.

48.          Where a Top Fund invests in one Underlying Fund, the frequency of valuation of the Top Fund mirrors, or will mirror, the frequency of valuation of the Underlying Fund. Where a Top Fund invests in more than one Underlying Fund, the frequency of the valuation of the Top Fund mirrors, or will mirror, the frequency of the valuation of the Underlying Fund that is valued the least frequently so that the value of each Underlying Fund will be available on the valuation date of the Top Fund.

49.          Each Top Trust and its corresponding Top Fund has, and will have, matching redemption dates. The securities of the Initial Top Trust and the Initial Top Fund are redeemable on a monthly basis on 60 days’ notice.

50.          No Top Fund accepts, or will accept, subscriptions and redemptions on a valuation date where the current value of one or more Underlying Funds alone or collectively representing more than 10% of the NAV of the Top Fund cannot be obtained by the Top Fund. No Top Fund that invests substantially all of its assets in Underlying Funds accepts, or will accept, redemptions on a valuation date where one or more Underlying Funds representing more than 10% of the NAV of the Top Fund are not available for redemption.

51.          Each Top Trust accepts, or will only accept, subscriptions and redemptions on a valuation date where the Top Fund is both able to value the Underlying Funds and accept a redemption request.

52.          In all cases, the Filer manages, or will manage, the liquidity of each of the (a) Top Trusts having regard to the redemption features of the corresponding Top Fund and the Underlying Fund(s) to ensure that it can meet redemption requests from investors of the Top Trust and (b) Top Funds having regard to the redemption features of the Underlying Fund(s) to ensure that it can meet redemption requests from investors of the Top Fund.

53.          The Filer does not, and will not, adjust the NAV of the Third Party Underlying Funds in which a Top Fund invests. In rare unforeseen instances where the NAV of a Third Party Underlying Fund is not available, the Top Fund’s administrator, who is independent of the Filer, will fair value the Third Party Underlying Funds in accordance with the Filer’s fair valuation policy.

54.          Prior to purchasing securities of a Top Trust, each investor will be provided with disclosure about the relationships and potential conflicts of interest between the Top Trust, the Top Fund in which it invests, and the Underlying Funds in which the Top Fund invests.

55.          Each current investor in the Initial Top Trust has received written disclosure through an offering memorandum or other similar disclosure document stating:

(a)           that the Initial Top Trust will invest substantially all of its assets in the Initial Top Fund;

(b)           that the Initial Top Fund may purchase securities of one or more Underlying Funds;

(c)           that the Filer or its affiliate is the investment fund manager and/or portfolio manager of each of the Initial Top Trust and the Initial Top Fund;

(d)           the approximate or maximum percentage of NAV of the Initial Top Trust that is intended to be invested in securities of the Initial Top Fund and the approximate or maximum percentage of NAV of the Top Fund that is intended to be invested in securities of one or more Underlying Funds; and

(e)           the fees and expenses payable by the Initial Top Fund, including a profit allocation (i.e. incentive fee) (collectively, the Previous Top Trust Fund-on-Fund Disclosure).

56.          Prior to purchasing securities of a Top Fund, each investor will be provided with disclosure about the relationships and potential conflicts of interest between the Top Fund and the Underlying Funds in which the Top Fund invests.

57.          Each current investor in the Initial Top Fund has received written disclosure through an offering memorandum or other similar disclosure document stating:

(a)           that the Initial Top Fund may purchase securities of one or more Underlying Funds;

(b)           that the Filer or its affiliate is the investment fund manager and/or portfolio manager of both the Initial Top Fund and any Filer Managed Underlying Fund; and

(c)           the approximate or maximum percentage of NAV of the Initial Top Fund that is intended to be invested in securities of the Underlying Funds (collectively, the Previous Top Fund Fund-on-Fund Disclosure).

58.          Each of the Top Trusts, Top Funds and any Underlying Fund that is subject to National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) prepares, or will prepare, annual audited financial statements and interim unaudited financial statements in accordance with NI 81-106 and otherwise complies, or will otherwise comply, with the requirements of NI 81-106, as applicable. The financial statements of each Top Trust disclose, and will continue to disclose, its holdings of securities of the corresponding Top Fund. The financial statements of each Top Trust are, and will be, prepared in accordance with International Financial Reporting Standards and the Top Trust’s notes to the financial statements make reference and refer to, and will make reference and refer to, the Top Fund’s financial statements, which will be attached to the Top Trust’s financial statements. The financial statements of each Top Fund disclose, and will continue to disclose, its holdings of securities of the Underlying Funds.

59.          The securityholders of the Initial Top Trust, who so elected, have received a copy of the Top Trust’s annual audited and interim unaudited financial statements.

60.          The securityholders of the Initial Top Fund, who so elected, have received a copy of the Top Fund’s annual audited and interim unaudited financial statements.

61.          The securityholders of each Top Trust will receive, on request and free of charge:

(a)           a copy of the Top Trust’s annual audited and interim unaudited financial statements;

(b)           a copy of any offering memorandum, or other similar document, if available, of the Top Fund in which the Top Trust invests;

(c)           a copy of any offering memorandum, or other similar document, if available, of any Underlying Fund in which that Top Fund invests;

(d)           the annual and interim financial statements of the Top Fund; and

(e)           the annual and interim financial statements of any Underlying Fund in which the Top Fund invests, if available.

62.          The securityholders of each Top Fund will receive, on request and free of charge:

(a)           a copy of the Top Fund’s annual audited and interim unaudited financial statements;

(b)           a copy of any offering memorandum, or other similar document, if available, of any Underlying Fund in which the Top Fund invests; and

(c)           the annual and interim financial statements of any Underlying Fund in which the Top Fund invests, if available.

Exemption Sought

63.          The Initial Top Trust was layered on the Initial Top Fund and the Three Tier Fund-on-Fund Structure commenced in May of 2008 (the Commencement Date). When the Initial Top Trust and the Initial Top Fund were launched, the Filer did not consider them to be “non-redeemable investment funds” or “mutual funds in Ontario”. Rather, the Filer considered the Initial Top Fund to be a private equity or venture capital fund and the Initial Top Trust to be a private equity or venture capital fund feeder fund. After the Initial Top Fund’s business evolved, the Filer considered the Initial Top Trust and the Initial Top Fund to be mutual funds in Ontario and obtained a decision on February 24, 2012 exempting the Filer and certain funds it manages from the investment restrictions in paragraph 111(2)(b) and subsection 111(4) of the Securities Act (Ontario) (the Act) to facilitate certain fund-on-fund investments (the Existing Relief). The Filer did not appreciate that the Existing Relief would facilitate a two tier fund-on-fund structure but not the Filer’s Three Tier Fund-on-Fund Structure. The Initial Top Trust could have relied on the Existing Relief, but for the condition in paragraph (c) of the Existing Relief that provides as follows: “no Top Fund will invest in an Underlying Fund unless the Underlying Fund invests less than 10% of its net assets in other mutual funds other than mutual funds that are money market funds or that issue index participation units”. In June 2012, promptly upon ascertaining the limitations of the Existing Relief, the Filer applied to amend or replace the Existing Relief.

64.          Given its status as a mutual fund in Ontario, and given the investment of all of its assets in units of the Initial Top Fund, the Initial Top Trust has not been in compliance with the requirements of paragraph 111(2)(b) and subsection 111(4) of the Act from the Commencement Date. Similarly, the Filer has not been in compliance with the restriction in subsection 13.5(2)(a) of NI 31-103 in connection with additional investments made by the Initial Top Trust in units of the Initial Top Fund since that provision came into force in September 2009. The Filer has been pursuing the Exemption Sought, in good faith, since June 2012.

65.          The Filer has strengthened its internal control systems to ensure future compliance with future laws and regulations. In particular, since applying for the Exemption Sought, the Filer prepared and implemented a plan to strengthen its compliance system including the appointment of a new chief compliance officer.

66.          The Initial Top Trust is currently a substantial securityholder of the Initial Top Fund. In addition, the amounts invested from time to time in a Future Top Fund by a Future Top Trust may exceed 20% of the outstanding voting securities of the Top Fund. As a result, each Future Top Trust could become a substantial securityholder of a Future Top Fund.

67.          In the absence of the Related Issuer Relief, the Initial Top Trust would be required to reduce the percentage of its net assets currently invested in the Initial Top Fund to less than 20% of the outstanding voting securities of the Initial Top Fund. In addition, in the absence of the Related Issuer Relief, a Future Top Trust would be precluded from purchasing and holding more than 20% of the outstanding voting securities of a Future Top Fund due to the investment restrictions contained in the Legislation.

68.          The Top Funds are, or will be, related investment funds by virtue of the common management by the Filer. The amount invested from time to time in an Underlying Fund by a Top Fund, either alone or together with one or more other Top Funds, may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, each Top Fund could, either alone or together with one or more other Top Funds, become a substantial securityholder of an Underlying Fund.

69.          In the absence of the Related Issuer Relief, each Top Fund, either alone or together with one or more other Top Funds, would be precluded from purchasing or holding more than 20% of the outstanding voting securities of any single Underlying Fund due to the investment restrictions contained in the Legislation.

70.          The Filer manages the Initial Top Trust and two of the Filer’s directors and officers are also directors and officers of the general partner of the Initial Top Fund. A director and an officer of the Filer is considered to be a “responsible person” defined by section 13.5 of NI 31-103. In addition, a director and/or officer of the Filer may also be an officer, partner, and/or director of a Future Top Fund or the general partner of a Future Top Fund formed as limited partnership.

71.          In the absence of the Consent Requirement Relief, the Filer would be prohibited from causing the Initial Top Trust to invest in securities of the Initial Top Fund. In addition, in the absence of the Consent Requirement Relief, the Filer would be precluded from causing a Future Top Trust to invest in a Future Top Fund unless (a) the fact that a responsible person of the Filer is also an officer, partner, and/or director of a Future Top Fund or the general partner of a Future Top Fund formed as limited partnership is disclosed to securityholders of the Future Top Trust and (b) the consent of each securityholder of the Future Top Trust is obtained.

72.          An officer, partner, and/or director of the Filer (considered a “responsible person” of a Top Fund within the meaning of the applicable provisions of NI 31-103) may also be an officer, partner, and/or director of a Filer Managed Underlying Fund in which the Top Fund intends to invest.

73.          In the absence of the Consent Requirement Relief, the Filer would be precluded from causing a Top Fund from investing in a Filer Managed Underlying Fund unless the required disclosure is made to securityholders of the Top Fund and the consent of each securityholder of the Top Fund is obtained.

74.          The Three Tier Fund-on-Fund Structure represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of each Top Trust and each Top Fund.

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 provided that:

(a)           securities of the Top Trusts, Top Funds and Underlying Funds are distributed in Canada solely pursuant to exemptions from the prospectus requirements in NI 45-106 or the Legislation;

(b)           the investment by a Top Trust in a Top Fund and by a Top Fund in an Underlying Fund, as applicable, is compatible with the investment objectives of such Top Trust or Top Fund, as applicable;

(c)           an Underlying Fund will not invest in securities of other investment funds and the Three Tier Fund-on-Fund Structure will not have more than three tiers of investment funds;

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

(e)           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;

(f)            no sales fees or redemption fees are payable by (i) each Top Trust in relation to its purchases or redemptions of securities of the corresponding Top Fund, (ii) each Top Fund in relation to its purchases or redemptions of securities of any corresponding Filer Managed Underlying Funds, and (iii) each Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund or corresponding Top Trust;

(g)           the Filer will not cause the securities of a Top Fund held by a Top Trust to be voted at any meeting of holders of such securities, except that the Filer may arrange for the securities of the Top Fund held by the Top Trust to be voted by the beneficial holders of securities of the Top Trust;

(h)           the Filer will not cause the securities of a Filer Managed Underlying Fund held by a Top Fund to be voted at any meeting of holders of such securities, except that the Filer may arrange for the securities of the Filer Managed Underlying Fund held by the Top Fund to be voted by (a) the beneficial holders of securities of the Top Fund except for a Top Trust and (b) with regard to the securities of the Filer Managed Underlying Fund beneficially owned by the Top Trust, the beneficial holders of securities of the Top Trust;

(i)            the offering memorandum, where available, or other disclosure document of a Top Trust will be provided to investors in a Top Trust prior to the time of investment and will disclose:

(i)            that the Top Trust will invest substantially all of its assets in one Top Fund;

(ii)           that the Top Fund may purchase securities of one or more Underlying Funds;

(iii)          that the Filer or its affiliate is the investment fund manager and/or portfolio manager of each of the Top Trust, the Top Fund and any Filer Managed Underlying Fund;

(iv)          each officer, director or substantial securityholder of the Filer, or its affiliate, or of the Top Trust that also has a significant interest in the Top Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the NAV of the Top Fund, and the potential conflicts of interest that may arise from such relationships;

(v)           each officer, director or substantial securityholder of the Filer, or its affiliate, or of the Top Fund that also has a significant interest in any Filer Managed Underlying Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the NAV of each Filer Managed Underlying Fund, and the potential conflicts of interest that may arise from such relationships;

(vi)          the approximate or maximum percentage of NAV of the Top Trust that is intended to be invested in securities of the Top Fund and the approximate or maximum percentage of NAV of the Top Fund that is intended to be invested in securities of one or more Underlying Funds;

(vii)         the fees and expenses payable by the Top Fund that the Top Trust invests or will invest in, including any incentive fees, and the fees and expenses payable by the Underlying Funds that the Top Fund invests or may invest in, including any incentive fees; and

(viii)        that investors in each Top Trust are entitled to receive, on written request and free of charge, a copy of the offering memorandum or other similar disclosure document of the Top Fund and any Underlying Fund in which the Top Fund invests its assets, if available, and the annual and semi-annual financial statements of the Top Fund and any Underlying Fund in which the Top Fund invests its assets, if available (collectively, the New Top Trust Fund-on-Fund Disclosure);

(j)            the offering memorandum, where available, or other disclosure document of a Top Fund will be provided to investors in a Top Fund prior to the time of investment and will disclose:

(i)            that the Top Fund may purchase securities of one or more Underlying Funds;

(ii)           that the Filer or its affiliate is the investment fund manager and/or portfolio manager of both the Top Fund and any Filer Managed Underlying Fund;

(iii)          each officer, director or substantial securityholder of the Filer, or its affiliate, or of the Top Fund that also has a significant interest in any Filer Managed Underlying Fund, the approximate amount of the significant interest they hold, on an aggregate basis, expressed as a percentage of the NAV of each Filer Managed Underlying Fund, and the potential conflicts of interest that may arise from such relationships;

(iv)          the approximate or maximum percentage of NAV of the Top Fund that is intended to be invested in securities of the Underlying Funds;

(v)           the fees and expenses payable by the Underlying Funds that the Top Fund invests or may invest in, including any incentive fees; and

(vi)          that investors in each Top Fund are entitled to receive, on written request and free of charge, a copy of the offering memorandum or other similar disclosure document of any Underlying Fund in which the Top Fund invests its assets, if available, and the annual and semi-annual financial statements of any Underlying Fund in which the Top Fund invests its assets, if available (collectively, the New Top Fund Fund-on-Fund Disclosure);

(k)           each existing unitholder of the Initial Top Trust receives, within one month from the date of this decision, the New Top Trust Fund-on-Fund Disclosure, to the extent that it is different from the Previous Top Trust Fund-on-Fund Disclosure; and

(l)            each existing unitholder of the Initial Top Fund receives, within one month from the date of this decision, the New Top Fund Fund-on-Fund Disclosure, to the extent that it is different from the Previous Top Fund Fund-on-Fund Disclosure.

The Consent Requirement Relief

“Darren McKall”
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission                      

The Related Issuer Relief

“Edward P. Kerwin”
Commissioner
Ontario Securities Commission
“AnneMarie Ryan”
Commissioner
Ontario Securities Commission