NP 11-203 – relief to permit investment of up to 20% of the Fund’s net assets in gold, permitted gold certificates, silver, certain silver certificates, and/or specified derivatives of which the underlying interest is gold or silver, as part of a defensive strategy for when equity markets are uncertain or volatile – National Instrument 81-102 Mutual Funds.

National Instrument 81-102 Mutual Funds, paragraphs 2.3(e), (f) and (h), and section 19.1.

February 23, 2009

(the Jurisdiction)

and

(the Filer)

and

(the Fund)

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) for an exemption, pursuant to section 19.1 of National Instrument 81-102 Mutual Funds (NI 81-102) from clauses 2.3(e), (f) and (h) of NI 81-102 to permit the Fund to invest up to 20% in total of its net assets, taken at market value at the time of the purchase, directly in gold, permitted gold certificates, silver, certain silver certificates and/or specified derivatives of which the underlying interest is gold or silver (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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, the Yukon Territory and Nunavut Territory, where applicable.

Interpretation

Terms defined in NI 81-102, 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 is a corporation incorporated under the laws of Ontario with its head office in Toronto, Ontario. The Filer is the manager and portfolio adviser for the Fund.
The Fund is an open-end mutual fund trust established pursuant to a Trust Agreement governed under the laws of Ontario.
Neither the Filer nor the Fund is in default of securities legislation in any province or territory of Canada.
A simplified prospectus and annual information form, each dated June 19, 2008, have been filed in each province and territory of Canada.
The Fund is a reporting issuer under the securities legislation of each province and territory of Canada.
The investment objective of the Fund is to achieve long-term capital growth by investing primarily in equities and equity related securities of small, medium and large capitalized companies that have the potential to produce above average growth.
The simplified prospectus of the Fund discloses that one of the risks that the Fund is exposed to is commodity risk.
The Filer believes that the markets in gold and silver are highly liquid, and there are no liquidity concerns with permitting the Fund to invest, up to 20% in total of its net assets, taken at market value at the time of the purchase, directly in gold, permitted gold certificates, silver, certain silver certificates and/or specified derivatives of which the underlying interest is gold or silver.
The Filer is well known in Canadian capital markets for its expertise and investment strategies involving gold and silver, and does a substantial amount of research in this area. The Filer believes that this expertise and research would be beneficial to the unitholders of the Fund.
The Filer intends to invest in gold and silver as a defensive strategy in adverse market, economic, political or other circumstances. The Filer considers gold and silver to be a viable alternative to holding cash or cash equivalents in such markets. Permitting the Fund to invest in silver, along with gold, will permit the portfolio adviser of the Fund additional flexibility to increase gains for the Fund in certain market conditions, which may have otherwise caused the Fund to have significant cash positions and therefore deter from its ability to achieve its investment objective of providing long term capital growth.
The Filer believes that the potential volatility or speculative nature of silver (or the equivalent in certificates or specified derivatives of which the underlying interest is silver) is no greater than that of gold, or of equity securities of issuers in which the Fund invests and, in the portfolio context of the Fund, can provide additional diversification to the 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) the silver certificates that the Fund invests in will be certificates that represent silver that is:

(i) available for delivery in Canada, free of charge, to or to the order of the holder of the certificate;

(ii) of a minimum fineness of 999 parts per 1,000;

(iii) held in Canada;

(iv) in the form of either bars or wafers; and

(v) if not purchased from a bank listed in Schedule I, II or III of the Bank Act (Canada), fully insured against loss and bankruptcy by an insurance company licensed under the laws of Canada or a province or territory of Canada;

(b) the Investment Strategies section in the Fund’s simplified prospectus includes disclosure that the Fund:

(i) may invest in gold and silver when deemed appropriate by the portfolio adviser; and

(ii) has received approval of the Canadian securities regulators to permit the Fund to invest directly in gold, permitted gold certificates, silver, certain silver certificates and/or specified derivatives of which the underlying interest is gold or silver, up to 20% in total of its net assets, taken at the market value at the time of the purchase; and

(c) the risks section in the Fund’s simplified prospectus includes disclosure explaining the risks associated with the Fund being over-weighted in certain industry sectors or asset classes, including the risks of investing directly in gold and silver.

“Vera Nunes”

Vera Nunes

Assistant Manager, Investment Funds

ONTARIO SECURITIES COMMISSION

SEDAR #1351439

Headnote

Applicable Legislative Provisions