November 24, 2015

THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)

AND

IN THE MATTER OF NIAGARA CAPITAL PARTNERS LTD. (the Filer)

AND

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

The principal regulator in the Jurisdiction has received an application from the Filer on its behalf and on behalf of Niagara Access Alpha Fund (the Initial Top Fund), and any other investment fund which is not a reporting issuer under the securities legislation of the principal regulator (the Legislation) and may be established and managed by the Filer in the future (together with the Initial Top Fund, the Top Funds), which invests its assets in the Discovery Partnership Fund (the Initial Underlying Fund) or any other investment fund which is not a reporting issuer and may be advised or managed by the Filer in the future (together with the Initial Underlying Fund, the Underlying Funds), for a decision under the Legislation exempting the Filer and the Top Funds from the restrictions in the Legislation which prohibit:

(a) an investment fund from knowingly making an investment in any person or company in which the investment fund, alone or together with one or more related investment funds, is a substantial security holder; and

(b) an investment fund or its management company or its distribution company from knowingly holding an investment described in paragraph (a) above

(together, the Requested Relief).

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

(a) the Ontario Securities Commission is the principal regulator for the application; and

(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 Alberta.

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

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

The Filer

1The Filer is a corporation incorporated pursuant to the Business Corporations Act (Ontario). Its head office is located in Toronto, Ontario.

2The Filer is registered as an investment fund manager and an exempt market dealer under applicable securities legislation in the provinces of Ontario and British Columbia.

3The Filer is not a reporting issuer in any jurisdiction of Canada. Other than as described below, the Filer is not in default of securities legislation in Canada.

4The Filer is, or will be, the investment fund manager of the Top Funds and the Underlying Funds.

5The Filer may act as a distributor of the securities of the Top Funds and the Underlying Funds not otherwise sold through the Portfolio Manager (as defined below) or another registered dealer.

The Portfolio Manager

6Friedberg Mercantile Group Ltd. (Friedberg or the Portfolio Manager) is a corporation incorporated pursuant to the Business Corporations Act (Ontario). Its head office is located in Toronto, Ontario.

7Friedberg is registered as an investment dealer under applicable securities legislation in all provinces and territories of Canada and is a member of the Investment Industry Regulatory Organization of Canada. Friedberg is also registered as a futures commission merchant under the Commodities Futures Act (Ontario) and as a derivatives dealer under the Derivatives Act (Québec).

8Friedberg is not a reporting issuer in any jurisdiction of Canada.

9Friedberg is the portfolio manager for the Initial Top Fund and is expected to be the portfolio manager for any future Top Funds. Friedberg is also the portfolio manager for the Initial Underlying Fund and is expected to be the portfolio manager for any future Underlying Funds.

10Friedberg has complete discretion to invest and reinvest the assets of the Top Funds and the Underlying Funds and is responsible for executing all portfolio transactions while being subject to applicable securities laws. Furthermore, the Portfolio Manager may also act as a distributor of the securities of the Top Funds and the Underlying Funds not otherwise sold through the Filer or another registered dealer.

11The Filer and the Portfolio Manager are not affiliated.

The Top Funds

12The Initial Top Fund is an open-ended unincorporated investment trust established under the laws of the province of Ontario pursuant to a trust agreement dated as of January 9, 2014. Each future Top Fund will be structured as an open-ended unincorporated investment trust established under the laws of the province of Ontario.

13Each Top Fund is, or will be, a mutual fund as defined in the applicable securities legislation of the jurisdictions in which the securities of such Top Fund are distributed.

14The investment objective of the Initial Top Fund is to provide investors with long-term capital growth and returns through exposure to the investment strategies utilized by the Initial Underlying Fund.

15The Initial Top Fund is authorized to invest all of its assets in the Initial Underlying Fund and has, to date, invested all of its assets in this manner. The Initial Top Fund will continue to invest all of its assets in this manner, subject to receipt of the Requested Relief. Each future Top Fund will be authorized to invest all of its assets in a corresponding future Underlying Fund.

16The Initial Top Fund is not, and none of the future Top Funds will be, a reporting issuer in any jurisdiction of Canada.

17The securities of each Top Fund will be sold to investors solely pursuant to exemptions from the prospectus requirements of applicable securities legislation in Canada in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106).

18Other than as described below, the Initial Top Fund is not in default of securities legislation in Canada.

The Underlying Funds

19The Initial Underlying Fund is a limited partnership established under the laws of the province of Ontario. Each future Underlying Fund will be structured as a limited partnership established under the laws of the province of Ontario.

20Niagara Capital Funds GP Inc., a corporation incorporated pursuant to the Business Corporations Act (Ontario), is the general partner of the Initial Underlying Fund (the General Partner). The General Partner is an affiliate of the Filer. The general partner of each future Underlying Fund will be an affiliate of the Filer.

21The Initial Underlying Fund is, and each future Underlying Fund will be, an investment fund as defined in the applicable securities legislation of the jurisdictions in which the securities of the Underlying Fund are distributed.

22The investment objective of the Initial Underlying Fund is to achieve appreciation of its assets by investing in one or more investment strategies through one or more managed investment accounts with commodity trading advisors and securities advisors, which managed investment accounts will be primarily comprised of (i) investments in managed futures strategies and, to a lesser extent, (ii) investments in securities which are intended to provide returns which are not substantially correlated with the returns on the managed futures strategies.

23The Initial Underlying Fund is not, and none of the future Underlying Funds will be, a reporting issuer in any jurisdiction of Canada.

24The securities of each Underlying Fund will be sold to investors solely pursuant to exemptions from the prospectus requirements of applicable securities legislation in Canada in accordance with NI 45-106.

25Each Underlying Fund may have investors other than, and in addition to, its corresponding Top Fund.

26Each of the future Underlying Funds will have separate investment objectives, strategies and restrictions.

27The Initial Underlying Fund is not in default of securities legislation of any jurisdiction of Canada.

Prior Default

28The Initial Top Fund commenced its investment activities in June 2014 (the Commencement Date), which activities included investing all of its assets in units of the Initial Underlying Fund.

29The units of the Initial Top Fund are redeemable by the holders thereof on a semi-annual basis for a redemption amount computed by reference to the net asset value (NAV) of the Initial Top Fund. It was believed in good faith by the Filer that the Initial Top Fund was not a mutual fund within the meaning of that term under the Legislation.

30Neither the Filer nor its legal counsel at that time was aware of the published position of the Canadian Securities Administrators that redemption more frequent than annually constitutes redemption "on demand, or within a specified period after demand" for the purposes of the definition of "mutual fund" in the Legislation. Accordingly, the Initial Top Fund was, from inception, a mutual fund in Ontario within the meaning of that term in the Legislation.

31Given its status as a mutual fund in Ontario, and given the investment of all of its assets in units of limited partnership interest in the Initial Underlying Fund, the Initial Top Fund has not been in compliance with the requirements of paragraph 111(2)(b) of the Legislation from the Commencement Date.

32The Filer has voluntarily ceased distributing the securities of the Initial Top Fund and has ceased investing the assets of the Initial Top Fund in the Initial Underlying Fund, all pending the granting of the Requested Relief.

Fund-on-Fund Structure

33Each Top Fund allows its investors to obtain indirect exposure to the investment portfolio of the corresponding Underlying Fund and its investment strategies primarily through direct investment by a Top Fund in securities of the corresponding Underlying Fund (the Fund-on-Fund Structure).

34Each Top Fund is, or will be, organized as a trust in order for its securities to be qualified investments under the Income Tax Act (Canada) (the Tax Act) for registered plans and tax-free savings accounts, and also to create an investment that may be more attractive to investors that may not wish to invest directly in a limited partnership.

35The units of limited partnership interest of the Underlying Funds are not qualified investments under the Tax Act for registered plans and tax-free savings accounts.

36Each Fund-on-Fund Structure involving a future Top Fund and corresponding future Underlying Fund will be structured in a manner similar to the arrangement of the Initial Top Fund and the Initial Underlying Fund.

37Any investment by a Top Fund in an Underlying Fund will be aligned with the investment objectives, investment strategies, risk profile and other principal terms of the Top Fund.

38The portfolio of each Underlying Fund will consist primarily of managed futures investments. Each Underlying Fund will not hold more than 10% of its NAV in illiquid assets (as defined in National Instrument 81-102 Investment Funds (NI 81-102)).

39An investment by a Top Fund in an Underlying Fund will be effected based on an objective NAV of the Underlying Fund.

40Each current investor in the Initial Top Fund has received disclosure in writing of:

(a) the intention of the Initial Top Fund to invest in securities of the Initial Underlying Fund; and

(b) the relationships and potential conflicts of interest between the Initial Top Fund and the Initial Underlying Fund, including that the Initial Underlying Fund and future Underlying Funds will be managed by the Filer

(together, the Previous Fund-on-Fund Information).

41The Filer currently does not charge any management fee or incentive fee to the Initial Top Fund. The Filer will ensure that the arrangements between each Top Fund and each corresponding Underlying Fund involved in a Fund-on-Fund Structure will avoid the duplication of management fees and incentive fees.

42There will be no sales or redemption fees payable by a Top Fund in respect of an acquisition, disposition or redemption of securities of an Underlying Fund by the Top Fund that, to a reasonable person, would duplicate a fee payable by an investor in the Top Fund. The Filer currently does not charge any sales commission or redemption fees to the Initial Top Fund in connection with an investment in the Initial Underlying Fund.

43Each of the Top Funds and the Underlying Funds that are subject to National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) will prepare annual audited financial statements and interim unaudited financial statements in accordance with NI 81-106 and will otherwise comply with the requirements of NI 81-106, as applicable. The Initial Top Fund complies with the requirements of NI 81-106.

44No Underlying Fund will be a Top Fund.

45An Underlying Fund will have valuation and redemption dates that are no less frequent than the corresponding Top Fund.

46The custodian of the assets of each Top Fund and each Underlying Fund is, or will be, one or more financial institutions and/or their affiliates, or such third party or parties as may be appointed by the Filer or its affiliates. The custodian of each Top Fund and each Underlying Fund meets, or will meet, the qualifications set out in subsection 6.2 of NI 81-102.

47Each Top Fund is, or will be, a related mutual fund (under applicable securities legislation) by virtue of the common management by the Filer. The amounts invested from time to time in an Underlying Fund by a Top Fund, either alone or together with 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 other Top Funds, become a substantial security holder of an Underlying Fund. The Initial Top Fund may become a substantial security holder of the Initial Underlying Fund and it is expected that each future Top Fund may be a substantial security holder of the corresponding future Underlying Fund.

48In the absence of the Requested Relief, each Top Fund would be precluded from purchasing and holding securities of an Underlying Fund due to the conflict of interest investment restrictions contained in the Legislation.

49Each Top Fund's investment in the corresponding Underlying Fund represents the business judgement of a responsible person uninfluenced by considerations other than the best interests of the investment funds concerned.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Requested Relief is granted provided that:

Securities of the Top Funds are distributed in Canada solely pursuant to exemptions from the prospectus requirements in NI 45-106.
Each Top Fund invests all or substantially all of its assets in an Underlying Fund.
At the time of the purchase of securities of an Underlying Fund, the Underlying Fund holds no more than 10% of its NAV in securities of other investment funds, unless the Underlying Fund:

(a) is a "clone fund" (as defined by NI 81-102),

(b) purchases or holds securities of a "money market fund" (as defined by NI 81-102), or

(c) purchases or holds securities that are "index participation units" (as defined by NI 81-102) issued by an investment fund.

No management fees or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by the corresponding Underlying Fund for the same service.
No sales or redemption charge or fee is payable by a Top Fund in relation to its purchase or redemption of securities of the corresponding Underlying Fund.
The Filer does not cause the securities of an Underlying Fund held by a Top Fund to be voted at any meeting of the securityholders of the Underlying Fund except that the Filer 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.
The offering memorandum, where available, or other disclosure document of a Top Fund is provided to investors in a Top Fund prior to the time of investment and will disclose the following (collectively, the New Fund-on-Fund Information):

(a) that the Top Fund invests all or substantially all of its assets in the corresponding Underlying Fund;

(b) that the Filer is the investment fund manager of both the Top Fund and the Underlying Fund;

(d) that investors are entitled to receive from the Filer, on request and free of charge, a copy of

(i) the offering memorandum or other similar disclosure document (if available);

(ii) the annual and semi-annual financial statements; and

(iii) any other continuous disclosure documents that the Underlying Funds may make available to their respective investors;

relating to the corresponding Underlying Fund in which the Top Fund invests its assets.

Each existing unitholder of the Initial Top Fund receives, within one month from the date of this decision, the New Fund-on-Fund Information to the extent different from the Previous Fund-on-Fund Information.

"T. Moseley" "Mary Condon"

Name: T. Moseley Name: Mary Condon

Title: Commissioner Title: Commissioner

Ontario Securities Commission Ontario Securities Commission

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – relief granted from the investment fund self-dealing restrictions in securities legislation to allow pooled funds to invest in securities of underlying funds under common management – relief subject to certain conditions.

Applicable Legislative Provisions

Securities Act (Ontario) R.S.O. 1990, c. S.5, as amended, paragraph 111(2)(b), subsection 111(4) and section 113.

Niagara Capital Partners Ltd. (Re), 2015 CanLII 78246

Case Summary