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Vision Capital Corporation
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief from subparagraphs 13.5(2)(b)(ii) and (iii) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit inter-fund trades between investment funds and pooled funds managed by the same manager – Inter-fund trades subject to conditions, including IRC approval and pricing requirements – Trades involving exchange-traded securities permitted to occur at last sale price as defined in the Universal Market Integrity Rules.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b), 15.1.
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(2).
Citation: Re Vision Capital Corporation, 2016 ABASC 267
November 3, 2016
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
VISION CAPITAL CORPORATION
(the Filer)
AND THE INITIAL TOP FUNDS AND THE INITIAL UNDERLYING FUND
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application from the Filer on behalf of itself, its Affiliates, the Initial Top Funds and each other Pooled Fund.
The application consists of two parts. First, the application is for a decision under the securities legislation (the Legislation) of the Jurisdictions for the following:
(a) an exemption from the restriction in paragraph 13.5(2)(a) of 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 that fact is disclosed to the client and the written consent of the client to the purchase is obtained before the purchase, to permit a Top Fund to invest in an Underlying Fund (the Consent Relief); and
(b) an exemption from the restrictions in subparagraphs 13.5(2)(b)(ii) and (iii) of NI 31-103 that prohibit 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 or sell a security from or to the investment portfolio of any of (i) an associate of a responsible person and (ii) an investment fund for which a responsible person acts as an adviser, to permit:
(i) the In Specie Transactions in connection with effecting the Reorganization (the In Specie Relief); and
(ii) Inter-Fund Trades (the Inter-Fund Trading Relief);
Second, the application is for a decision solely from the securities regulatory authority in Alberta under the Securities Act (Alberta) (the Alberta Act):
(a) exempting each Alberta Top Fund from the restriction in section 185(2)(b) of the Alberta Act that prohibits a mutual fund from knowingly making an investment 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 to permit each Alberta Top Fund to invest in an Underlying Fund; and
(b) exempting each Alberta Top Fund, the Filer and its Affiliates from the restriction in section 185(3) of the Alberta Act that prohibits them from holding an investment described in paragraph (a) above,
(together, the Related Issuer Relief).
The Consent Relief, the In Specie Relief, the Inter-Fund Trading Relief, and the Related Issuer Relief are collectively defined as the Requested Relief.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for this application;
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Manitoba and Québec in respect of the Consent Relief, In Specie Relief and Inter-Fund Trading Relief; and
(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario in respect of the Consent Relief, In Specie Relief and Inter-Fund Trading Relief.
Definitions and Interpretation
Terms defined or interpreted in National Instrument 14-101 Definitions, MI 11-102 or the Alberta Act have the same meanings if used in this decision, unless otherwise defined herein.
The terms set out below have the following meanings:
Affiliate means a person or company that is affiliated with the Filer;
Alberta Top Fund means a Top Fund that is a mutual fund under the Alberta Act;
Canadian LP means the Pooled Fund, Vision Opportunity Fund Limited Partnership;
Closing Sale Price means the "current market price of the security" as defined in subparagraph 6.1(1)(a)(i) of NI 81-107;
Existing Pooled Fund means a Pooled Fund that is currently in existence;
Fund-on-Fund Structure means a master-feeder, fund-on-fund structure in which one or more Pooled Funds act as feeder funds in respect of an underlying master Pooled Fund;
Future Pooled Fund means a Pooled Fund for which the Filer or an Affiliate will in future act as manager, portfolio manager or both;
Future Top Fund means a Future Pooled Fund that is a Top Fund;
Future Underlying Fund means a Future Pooled Fund that is an Underlying Fund;
illiquid asset has the meaning ascribed to it in NI 81-102;
IRC means an independent review committee as defined in NI 81-107;
Initial Top Fund means any of the Canadian LP, the Non-Resident LP or the Trust and Initial Top Funds refers to those three funds collectively;
Initial Underlying Fund means a Future Pooled Fund, expected to be named Vision Opportunity Master Fund Limited Partnership, that will be an Underlying Fund;
In Specie Transaction means a type of Inter-Fund Trade involving the one-time purchase by an Initial Top Fund of securities of the Initial Underlying Fund, providing as payment, good delivery of all of the Initial Top Fund’s portfolio securities and other assets;
Inter-Fund Trade means the purchase and sale of securities between two Pooled Funds, or between a Managed Account and a Pooled Fund;
Last Sale Price means in respect of a security traded on an exchange, the last sale price, as defined in the Universal Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, on that exchange, prior to the execution of the trade on that trading day;
Managed Account means an account managed by the Filer or an Affiliate for a client that is not a responsible person and over which the Filer or an Affiliate has discretionary authority;
NAV means net asset value;
NI 31-103 means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
NI 45-106 means National Instrument 45-106 Prospectus Exemptions;
NI 81-102 means National Instrument 81-102 Investment Funds;
NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds;
Non-Resident LP means the Pooled Fund, Vision Opportunity Non-Resident Limited Partnership;
Pooled Fund means an investment fund that is not a reporting issuer in any jurisdiction of Canada in respect of which the Filer or an Affiliate acts as manager, portfolio adviser, or both;
portfolio manager has the meaning ascribed to it in NI 31-103;
Registered Plans include registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered disability savings plans, tax-free savings accounts and registered education savings plans;
Reorganization means the creation of a Fund-on-Fund Structure such that the Initial Underlying Fund will become the master fund and the Initial Top Funds will be the feeder funds;
responsible person has the meaning ascribed to it in subsection 13.5(1) of NI 31-103;
Top Fund means a Pooled Fund that invests in another Pooled Fund in a Fund-on-Fund Structure;
Trust means the Pooled Fund, Vision Opportunity Trust Fund;
Underlying Fund means a Pooled Fund in which another Pooled Fund invests in a Fund-on-Fund Structure; and
VS Funds means, together, the two Existing Pooled Funds, Vision Strategic Opportunity Fund Limited Partnership and Vision Strategic Opportunity Non-Resident Fund Limited Partnership.
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 with its head office in Toronto, Ontario.
2. The Filer is registered as an investment fund manager, portfolio manager and exempt market dealer in Alberta, British Columbia, Manitoba and Ontario and as an investment fund manager and exempt market dealer in Québec.
3. The Filer is not a reporting issuer in any jurisdiction of Canada and is not in default of securities legislation in any jurisdiction of Canada.
4. The Filer is the investment fund manager and portfolio manager of the Initial Top Funds and will be the investment fund manager and portfolio manager of the Initial Underlying Fund. The Filer is also currently the investment fund manager and portfolio manager of the VS Funds.
5. The Filer or an Affiliate will act as investment fund manager, portfolio manager or both of each Future Pooled Fund and Managed Account.
6. Each Affiliate will be registered, as required, as an investment fund manager, portfolio manager, or both.
7. The Filer or an Affiliate has or will have complete discretion to invest and reinvest the assets of each Pooled Fund and Managed Account and is or will be responsible for executing all portfolio transactions. Furthermore, the Filer may act as a distributor of securities of the Pooled Funds not otherwise sold through another registered dealer.
The Reorganization
8. The Filer wishes to effect the Reorganization because the Fund-on-Fund Structure will accommodate continued investment by non-resident investors and Canadian taxable and non-taxable investors through independent feeder funds in a cost efficient manner. The Filer believes a larger master fund with more than one feeder fund will provide each of the Initial Top Funds with the benefits of economies of scale and greater diversification.
9. The VS Funds are not part of the Reorganization and will remain as stand-alone funds with direct, separately managed portfolios.
Reorganization via In Specie Transactions
10. The Filer wishes to effect the Reorganization by way of the In Specie Transactions because it considers that to be the most efficient and cost effective way for the Initial Underlying Fund to acquire the portfolio securities and for each Initial Top Fund to dispose of the portfolio securities. In particular, it allows:
(a) each Initial Top Fund to dispose of portfolio securities and the Initial Underlying Fund to purchase the same portfolio securities without incurring unnecessary brokerage costs: and
(b) the Filer to maintain within its control larger blocks of securities that would otherwise have to be broken up and then re-assembled.
11. Pursuant to the declaration of trust that governs the Trust and each of the limited partnership agreements that govern the Canadian LP and the Non-Resident LP, the Filer has the authority to implement the Reorganization and the In Specie Transactions without securityholder approval.
12. Prior to effecting the Reorganization the securityholders of each Initial Top Fund will receive:
(a) a notice describing the Reorganization, the reasons for, and benefits of, the Reorganization, the changes being made to such Initial Top Fund as a result of the Reorganization, and disclosure of the pro rata on-going expenses of the Initial Underlying Fund to be borne indirectly by the Initial Top Fund; and
(b) a revised offering memorandum for the Initial Top Fund.
13. The Initial Top Funds do not charge redemption fees. No redemption fees, sales charges, or other fees or commissions will be payable by securityholders of the Initial Top Funds in connection with the Reorganization. No sales or brokerage charges will be payable by the Initial Top Funds or the Initial Underlying Fund in connection with the Reorganization.
14. All costs of the Reorganization will be borne by the Filer.
15. There will be no increase in the fees, including management fees, to which an Initial Top Fund or its securityholders are directly or indirectly subject as result of the Reorganization. The fees will remain the same except that an incentive distribution will be made at the level of the Initial Underlying Fund instead of at the level of the Initial Top Funds.
16. Each Initial Top Fund will bear its pro rata share of the ongoing expenses of the Initial Underlying Fund, which will not be duplicative of the expenses that are charged by the Initial Top Fund to its securityholders.
17. There will be no changes to the investment objectives and strategies of any Initial Top Fund as a result of the Reorganization, with the exception that each Initial Top Fund will seek to achieve its investment objectives by investing through the Initial Underlying Fund rather than directly. The portfolio assets of each Initial Top Fund to be acquired by the Initial Underlying Fund pursuant to the Reorganization will be acceptable to the portfolio manager of the Initial Underlying Fund and consistent with the investment objective of the Initial Underlying Fund.
18. There will be no changes to the frequency of subscriptions, valuations, and redemptions of the Initial Top Funds. Securityholders of the Initial Top Funds will be able to redeem their shares or units at all redemption dates both prior to and after the Reorganization.
19. The transfer of the portfolio assets of the Initial Top Funds to the Initial Underlying Fund will not adversely impact the liquidity of the Initial Top Funds.
20. Each Initial Top Fund intends to elect to transfer its portfolio assets to the Initial Underlying Fund on a tax-deferred basis under the Income Tax Act (Canada), to the extent applicable. Accordingly, it is anticipated there will be no tax consequences to securityholders of the Initial Top Funds who are resident in Canada and no material tax consequences to non-resident securityholders of the Initial Top Funds resulting from the Reorganization.
21. It is anticipated that the Reorganization and In Specie Transactions will be executed by the Filer. The Filer will not receive any compensation in respect of the Reorganization or In Specie Transactions.
22. It is anticipated that the proposed Reorganization will be completed as soon as possible following the granting of the Requested Relief.
23. The Filer submits that the conflicts of interest in respect of the Reorganization and In Specie Transactions are addressed because:
(a) the IRC of each Initial Top Fund will have approved the applicable In Specie Transaction as required by this Decision in respect of an Inter-Fund Trade;
(b) each In Specie Transaction will be subject to compliance with written policies and procedures of the Filer that are consistent with applicable securities legislation and the oversight of the Filer’s chief compliance officer to ensure that the In Specie Transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to each Initial Top Fund and the Initial Underlying Fund, uninfluenced by considerations other than the best interests of each Initial Top Fund and the Initial Underlying Fund;
(c) the issue of units will be based upon the relative NAV of the portfolio assets received by the Initial Underlying Fund from each Initial Top Fund;
(d) the portfolio assets of each of the Initial Top Funds will be capable of being objectively valued because no Initial Top Fund holds more than 10% of its NAV in illiquid assets;
(e) the units of the Initial Underlying Fund that each Initial Top Fund receives in exchange for its portfolio assets will have an aggregate value equal to the value of the portfolio assets of such Initial Top Fund determined as at the date of the In Specie Transaction;
(f) the value of the portfolio assets will be calculated in accordance with the valuation policies and procedures outlined in the Initial Top Fund’s offering memorandum as it existed prior to the Reorganization, and will be consistent with the valuation policies of the Initial Underlying Fund; and
(g) the Reorganization by In Specie Transactions represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Initial Top Funds and the Initial Underlying Fund.
24. The Filer will keep a written record of the In Specie Transactions reflecting the details of the portfolio securities and other assets delivered to the Initial Underlying Fund, the value assigned to same and to the limited partnership units of the Initial Underlying Fund received by each Initial Top Fund in exchange for a period of at least five years after the In Specie Transactions, with the records for at least the first two years being maintained in a reasonably accessible place.
25. In the absence of the In Specie Relief, the Filer would be prohibited from engaging in the In Specie Transactions.
The Initial Top Funds
26. The Canadian LP is a Manitoba limited partnership, governed by a limited partnership agreement. The Canadian LP is available for investment only by Canadian-resident investors. The general partner of the Canadian LP is Vision Opportunity Fund (GP) Inc., a corporation incorporated under the laws of the province of Ontario and an Affiliate.
27. The Non-Resident LP is a Manitoba limited partnership, governed by a limited partnership agreement. The Non-Resident LP is available for investment only by non-resident investors. The general partner of the Non-Resident LP is Vision Opportunity Fund (GP) III Inc., a corporation incorporated under the laws of the province of Ontario and an Affiliate.
28. The Trust is a mutual fund trust established under the laws of the province of Manitoba pursuant to a declaration trust. The Filer is the trustee of the Trust. The Trust was formed to facilitate investment by Registered Plans since limited partnership interests are not eligible investments for Registered Plans.
29. Non-resident investors may invest indirectly in the Initial Underlying Fund through the Non-Resident LP, and Canadian investors may invest indirectly in the Initial Underlying Fund through either the Canadian LP or the Trust.
30. Each Initial Top Fund has substantially similar investment objectives and restrictions and, as a result, substantially similar investment portfolios. Pursuant to the Reorganization, rather than continuing to invest in a direct portfolio, each of the Initial Top Funds will seek to achieve its investment objective by investing all of its assets in the Initial Underlying Fund.
31. The Initial Top Funds are not in default of the securities legislation of any jurisdiction of Canada.
The Top Funds
32. Each Top Fund is and each Future Top Fund will be an investment fund under the Legislation.
33. No Top Fund is, or will be, a reporting issuer in any jurisdiction of Canada. Securities of each Top Fund will be offered for sale in Canada solely pursuant to exemptions from the prospectus requirement in NI 45-106.
34. Each Future Top Fund will be formed as a limited partnership, trust or corporation under the laws of the province of Manitoba, another jurisdiction of Canada, or a foreign jurisdiction.
35. The Filer may be the trustee of Future Pooled Funds established as trusts in Canada.
36. An Affiliate is expected to be the general partner of each Future Top Fund structured as a limited partnership.
37. Each Future Top Fund will seek to achieve its investment objective by investing all or substantially all of its assets in one or more Underlying Fund.
The Initial Underlying Funds
38. The Initial Underlying Fund will be an open-ended limited partnership formed under the laws of the province of Manitoba. The general partner of the Initial Underlying Fund will be an Affiliate that is expected to be a corporation named Vision Opportunity Master Fund (GP) Inc., incorporated under the laws of the province of Ontario.
39. The Filer will be entitled to receive management fees with respect to one or more classes of securities of the Initial Underlying Fund. The performance distributions are expected to be calculated based on increases in the NAV of certain classes of securities of the Initial Underlying Fund. The general partner of the Initial Underlying Fund will be entitled to receive 0.01% of profits of, and incentive distributions from, the Initial Underlying Fund.
40. The investment objective of the Initial Underlying Fund will be to generate consistent favourable risk-adjusted total returns to investors with a focus on the real estate sector. The Initial Underlying Fund will invest predominantly in North American exchange-traded equity and debt securities.
41. The assets of the Initial Underlying Fund (and the assets of the Initial Top Funds only if the Initial Top Funds hold securities other than securities of the Initial Underlying Fund) 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 the financial statements of the custodian may not be publicly available.
The Underlying Funds
42. Each Future Underlying Fund will be structured as a limited partnership, trust or corporation under the laws of the province of Manitoba, another jurisdiction of Canada, or a foreign jurisdiction.
43. Each Underlying Fund will be an investment fund under the Legislation.
44. No Underlying Fund will be a reporting issuer in any jurisdiction of Canada. Securities of each Underlying Fund will be offered for sale in Canada solely pursuant to exemptions from the prospectus requirement in NI 45-106.
45. No Underlying Fund will be a Top Fund.
46. An Affiliate is expected to be the general partner of each Future Underlying Fund formed as a limited partnership.
47. Each Underlying Fund may have separate investment objectives, strategies and restrictions.
48. The fee arrangements for the Future Underlying Funds will be substantially similar to those described above in respect of the Initial Underlying Fund.
49. The portfolio of each Underlying Fund will consist primarily of publicly traded securities. While an Underlying Fund is not, or will not be, restricted from purchasing and holding illiquid assets, the Filer or an Affiliate, manages or will manage the portfolio of each Underlying Fund to ensure there is sufficient liquidity to provide for redemptions of securities by securityholders of the Top Funds. Further, no Underlying Fund will hold more than 10% of its NAV in illiquid assets.
Fund-on-Fund Structure
50. In addition to creating a Fund-on-Fund Structure pursuant to the Reorganization, the Filer intends to set up future Fund-on-Fund Structures in which a Future Underlying Fund is the master fund and Future Top Funds are feeder funds investing in securities of the Underlying Fund.
51. A Fund-on-Fund Structure allows investors in a Top Fund to obtain exposure to the investment portfolio of the Underlying Fund and its strategies.
52. The primary purpose of the contemplated Fund-on-Fund Structures is to permit the Filer, or an Affiliate, to manage a single portfolio of assets in a single investment vehicle, the master fund, on a more efficient basis while accepting investments from both Canadian investors and investors in foreign jurisdictions, through one or more investment vehicles, feeder funds, that are designed to address the specific tax, securities and other legislation of each jurisdiction or type of investor.
53. Managing a single pool of assets provides economies of scale and allows a Top Fund to achieve its investment objectives in a cost efficient manner, can provide greater diversification for a Top Fund in particular asset classes and will not be detrimental to the interests of other security holders of the Underlying Funds.
54. Any investment by a Top Fund in an Underlying Fund will be aligned with the investment objectives, investment strategy, risk profile and other principal terms of the Top Fund.
55. An investment in an Underlying Fund by a Top Fund will be effected at an objective price.
56. A Top Fund will have the same valuation and redemption dates as the corresponding Underlying Fund.
Consent Relief
57. A person who is an officer or director, or both, of the Filer or an Affiliate, may be considered a responsible person of a Pooled Fund. Further, a person or company that is one or more of a partner, officer, or director of a Fund or the general partner of an Underlying Fund that is a limited partnership, may be an associate of a responsible person of an Underlying Fund. Consequently, in the absence of the Consent Relief, the Top Funds may be precluded from investing in their corresponding Underlying Funds, unless the specific fact is disclosed to security holders of the Top Fund and the written consent of the security holders of the Top Fund to the investment is obtained prior to the purchase.
Related Issuer Relief
58. Section 185(2)(b) of the Alberta Act prohibits a mutual fund from knowingly making an "investment" 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", each such term as defined or interpreted in the Alberta Act. Section 185(3) of the Alberta Act prohibits a mutual fund, its management company and distribution company from knowingly holding certain investments, including an "investment" referred to in section 185(2)(b) of the Alberta Act.
59. The Top Funds will be "related mutual funds" under the Alberta Act by virtue of the common management by the Filer or an Affiliate. Further, the amounts invested from time to time in an Underlying Fund by an Alberta Top Fund, either alone or together with other Top Funds that are "related mutual funds", may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, each Alberta Top Fund could, either alone or together with other Top Funds that are "related mutual funds", become a "substantial security holder", as defined in the Alberta Act, of an Underlying Fund.
60. The shareholders, officers and directors of the Filer are not expected to have a "significant interest", as defined in the Alberta Act, in the Initial Underlying Fund at the time the Alberta Top Funds invest in the Initial Underlying Fund.
61. In the absence of the Related Issuer Relief, each Alberta Top Fund would be precluded from purchasing and holding securities of an Underlying Fund due to the investment restrictions contained in section 185 of the Alberta Act.
Inter-Fund Trades
62. The Filer wishes to be able to effect Inter-Fund Trades.
63. The Filer and its Affiliates offer or will offer discretionary portfolio management services to clients with a Managed Account.
64. Neither the Filer nor an Affiliate will engage in an Inter-Fund Trade in respect of a Managed Account unless:
(a) the client wishing to receive discretionary investment management services pursuant to a Managed Account has entered into a written agreement appointing the Filer or its Affiliate to act as portfolio manager in connection with an investment portfolio of the client, with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent of the client to execute the trade; and
(b) the client has provided written authorization to the Filer or its Affiliate, as applicable, as portfolio manager of the Managed Account, to engage in Inter-Fund Trades.
65. Each Inter-Fund Trade will be consistent with the investment objectives of the Pooled Fund or Managed Account, as applicable.
66. At the time of an Inter-Fund Trade, the Filer will have policies and procedures in place to enable the Pooled Funds and Managed Accounts to engage in Inter-Fund Trades.
67. Prior to carrying out any Inter-Fund Trade pursuant to the Requested Relief, the Filer will establish an IRC for the Pooled Funds to review and approve, including by way of standing instructions, any proposed Inter-Fund Trade involving a Pooled Fund.
68. The Filer will cause each Pooled Fund to have an IRC that meets the requirements of section 3.7 of NI 81-107. Each IRC will comply with the standard of care set out in section 3.9 of NI 81-107. The IRC of a Pooled Fund will not approve an Inter-Fund Trade unless it has made the determination set out in subsection 5.2(2) of NI 81-107.
69. When the Filer or an Affiliate engages in an Inter-Fund Trade, it will comply with the following procedures:
(a) the portfolio manager will deliver the trading instructions for the Inter-Fund Trade to a trader on the trading desk of the Filer or an Affiliate;
(b) the trader on the trading desk in executing the trade will comply with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107, except that, if the security traded is listed on a Canadian or foreign exchange, the trade may be executed at the Last Sale Price rather than the Closing Sale Price;
(c) the policies applicable to the trading desk will require that all trades be executed on a timely basis; and
(d) the trader on the trading desk will advise the portfolio manager of the price at which the Inter-Fund Trade occurs.
70. If the IRC of a Pooled Fund becomes aware of an instance where the Filer did not comply with the terms of any decision document issued in connection with the Inter-Fund Trades, or a condition imposed by securities legislation or the IRC in its approval, the IRC of the Pooled Fund will, as soon as practicable, notify in writing the Decision Makers.
Inter-Fund Trading Relief
71. The Filer has determined that it is in the best interests of the Pooled Funds and the Managed Accounts to obtain the Inter-Fund Trading Relief.
72. The Filer has determined that because of the various investment objectives and investment strategies that are or will be utilized by the Pooled Funds and Managed Accounts, it may be appropriate for different investment portfolios to acquire or dispose of the same securities. The Filer has determined that engaging in these Inter-Fund Trades directly rather than with a third party has potential benefits such as lower trading costs, reduced market disruption and quicker execution. For example, such Inter-Fund Trades would enable the Pooled Funds and Managed Accounts to efficiently process trades desired by both portfolios at the current market price of the security without having to pay the costs of brokerage commissions, and may also enable the Pooled Funds and Managed Accounts to have access to securities that may be scarce in the open market (as may be the case for certain fixed income securities that have the characteristics sought by the Pooled Funds or Managed Accounts that they may not be otherwise able to access).
73. The Filer has also determined that the Inter-Fund Trading Relief would be beneficial because making the Pooled Funds and Managed Accounts subject to the same set of rules governing the execution of transactions will result in cost and timing efficiencies and in simplified and more reliable compliance procedures and simplified and more efficient monitoring of those procedures in connection with the execution of transactions.
74. The Filer believes it would be in the best interests of the Pooled Funds and Managed Accounts, as applicable, if an Inter-Fund Trade in an exchange-traded security could be made at the Last Sale Price prior to the execution of the trade, in lieu of the Closing Sale Price, in the Filer’s discretion, as this will result in the trade being done at the price which is closest to the price at the time the decision to make the trade is made.
75. The Filer is or may be the trustee of a Pooled Fund formed as a trust and, as a result, is or will be an associate of such Pooled Fund. In the absence of the Inter-Fund Trade Relief the Filer, or an Affiliate, as applicable:
(a) is prohibited by subparagraph 13.5(2)(b)(ii) of NI 31-103 from effecting an Inter-Fund Trade with an associate; and
(b) is a responsible person prohibited by paragraph 13.5(2)(b)(iii) of NI 31-103 from effecting an Inter-Fund Trade.
76. The exception in section 6.1 of NI 81-107 for the Inter-Fund Trades is not available because that exemption requires each party to the transaction to be a reporting issuer and requires the Inter-Fund Trade to occur at the Closing Sale Price.
(a) None of the Existing Pooled Funds are reporting issuers and the Manager has no current intention of forming any Future Pooled Fund that will be a reporting issuer.
(b) In respect of exchange-traded securities, the Filer wants to effect the trade at the Last Sale Price.
Decision
Decision of the Decision Makers under the Legislation
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision. The decision of the Decision Makers under the Legislation is that the Consent Relief, the Inter-Fund Trading Relief and the In Specie Relief is granted, provided as set out below:
1. In respect of the Consent Relief and In Specie Relief:
(a) securities of each Top Fund are distributed in Canada solely pursuant to exemptions from the prospectus requirement in NI 45-106;
(b) the investment by a Top Fund in an Underlying Fund is compatible with the investment objectives of the Top Fund;
(c) no Top Fund will purchase or hold securities of an Underlying Fund unless, at the time of the purchase of securities of the Underlying Fund, the Underlying Fund holds no more than 10% of its net assets in securities of other investment funds, excluding securities:
(i) of a "money market fund" (as defined by NI 81-102); and
(ii) that are "index participation units" (as defined by NI 81-102) issued by an investment fund;
(d) 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;
(e) no sales fees or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund;
(f) neither the Filer, nor an Affiliate, causes the securities of the Underlying Fund held by a Top Fund to be voted at any meeting of holders of such securities, except that the Filer, or an Affiliate, may arrange for the securities the Top Fund holds of the Underlying Fund to be voted by the beneficial holders of securities of the Top Fund; and
(g) in respect of an existing investor in an Initial Top Fund, prior to the Reorganization, and in respect of other investors in a Top Fund, prior to making an investment in a Top Fund, the investor will be provided with a revised offering memorandum and disclosure:
(i) that the Top Fund may purchase securities of the Underlying Fund;
(ii) that the Filer, or an Affiliate, is the investment fund manager or portfolio manager of both the Top Fund and the Underlying Fund;
(iii) that the Top Fund will invest all of its assets in the Underlying Fund;
(iv) the fees, expenses and any performance or special incentive distributions payable by the Underlying Fund that the Top Fund invests in; and
(v) that the Filer, or an Affiliate, will provide to the investor, on request and free of charge, the annual and, if available, interim financial statements relating to the Underlying Fund in which the Top Fund invests its assets.
2. In respect of the In Specie Relief, prior to effecting the In Specie Transactions, the board of directors of the Filer determines that the Reorganization and In Specie Transactions are in the best interests of each Initial Top Fund and the Initial Underlying Fund.
3. In respect of the Inter-Fund Trading Relief:
(a) each Inter-Fund Trade is consistent with the investment objectives of the Pooled Fund or Managed Account, as applicable;
(b) the Filer, or an Affiliate, as manager of a Pooled Fund, refers the Inter-Fund Trade involving a Fund to the IRC of that Fund in the manner contemplated by section 5.1 of NI 81-107 and the Filer or Affiliate, and the IRC of the Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;
(c) the IRC complies with paragraphs 69 and 71 of this Decision;
(d) in the case of an Inter-Fund Trade between Pooled Funds:
(i) the IRC of each Pooled Fund has approved the Inter-Fund Trade in respect of the Fund in accordance with the terms of subsection 5.2(2) of NI 81-107; and
(ii) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price;
(e) in the case of an Inter-Fund Trade between a Managed Account and a Pooled Fund:
(i) the IRC of the Pooled Fund has approved the Inter-Fund Trade in respect of such Pooled Fund in accordance with the terms of subsection 5.2(2) of NI 81-107;
(ii) the client has authorized the Inter-Fund Trade as contemplated by paragraph 65 of this Decision; and
(iii) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107 except that for purposes of paragraph (e) of subsection 6.1(2) of NI 81-107 in respect of exchange-traded securities, the current market price of the securities may be the Last Sale Price.
Decision of principal regulator under the Alberta Act
The decision of the Principal Regulator under the Alberta Act is that the Related Issuer Relief is granted, provided that the same conditions set out above in respect of the Consent Relief also apply to the Related Issuer Relief.
“Tom Graham”
Director, Corporate Finance