CI Investments Inc. (Re), 2018 CanLII 101160

October 19, 2018

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 CI INVESTMENTS INC. (the Filer)

AND

IN THE MATTER OF LAWRENCE PARK ALTERNaTIVE INVESTMENT GRADE CREDIT FUND, MARRET Alternative ABSOLUTE RETURN bond FUND AND MUNRO Alternative GLOBAL GROWTH FUND (collectively, the Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation), pursuant to section 19.1 of National Instrument 81-102 Investment Funds (NI 81‑102), exempting each Fund from the following provisions of NI 81-102:

(i) subsection 2.1(1), to permit each Fund to invest more than 10% of the net asset value of such Fund in securities of a single issuer (Single Issuer Relief);

(ii) paragraph 2.3(g), to permit each Fund to purchase, sell or use specified derivatives and/or debt-like securities other than in compliance with subsections 2.7(1), (2) and (3), and section 2.8 of NI 81-102 (Specified Derivatives Relief);

(iii) section 2.6, to permit each Fund to borrow cash to use for investment purposes in excess of the limits set out in paragraph 2.6(a) of NI 81-102 and to grant a security interest of its assets in connection therewith (Cash Borrowing Relief);

(iv) paragraph 2.6.1(1)(c) and subsections 2.6.1(2) and (3) of NI 81-102, to permit each Fund to borrow securities from a borrowing agent to sell securities short whereby: (i) the aggregate market value of all securities of the issuer of the securities sold short by each Fund may exceed 5% of the net asset value of such Fund; (ii) the aggregate market value of all securities sold short by each Fund may exceed 20% of the net asset value of such Fund; (iii) each Fund is not required to hold cash cover in connection with short sales of securities by such Fund; and (iv) each Fund is permitted to use the cash from a short sale to enter into a long-position in a security (Short Selling Relief);

(v) paragraphs 6.2(3)(a) and 6.3(3)(a) of NI 81-102, to permit each Fund to hold portfolio assets in Canada or outside of Canada with a custodian or a sub-custodian that is an affiliate of an entity described in subsection 6.2(1) or (2) of NI 81-102, or subsection 6.3(1) or (2) of NI 81-102, as applicable, that has equity, as reported in its most recent audited financial statements that have been made public or that will be made available to the Fund and its custodian (as applicable) upon request, of not less than $10,000,000 (in the case of the custodian or sub-custodian for asset held in Canada) or $100,000,000 (in the case of a sub-custodian for assets held outside of Canada) (Custodian Relief);

(vi) section 6.8, to permit each Fund to deposit with its lender, assets over which it has granted a security interest in connection with the Cash Borrowing Relief (Cash Borrowing Custody Relief);

(vii) section 7.1, to permit each Fund to pay a performance fee that is based on the cumulative total return of the Fund for the period that began immediately after the last period for which the performance fee was paid (the Performance Fee Relief);

(collectively, the Requested Relief).

Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

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

(ii) 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 each of the other provinces and territories of Canada (together with the province of Ontario, the Jurisdictions).

Interpretation

Unless expressly defined herein, terms in this application have the respective meanings given to them in NI 81‑102, National Instrument 14‑101 Definitions and MI 11‑102.

Representations

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

Background

1. The Filer will be the trustee, investment fund manager and the portfolio manager of each Fund. The Filer is a corporation subsisting under the laws of the Province of Ontario with its head office located in Toronto, Ontario. The Filer is registered:

(a) under the securities legislation of all the Jurisdictions as a portfolio manager and exempt market dealer;

(b) under the securities legislation of Ontario, Québec and Newfoundland and Labrador as an investment fund manager; and

(c) under the Commodity Futures Act (Ontario) as a commodity trading counsel and a commodity trading manager.

2. Each Fund will be a mutual fund created under the laws of the Province of Ontario and will be governed by the provisions of NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities.

3. Units of the Funds will be offered by simplified prospectus filed in all of the Jurisdictions and, accordingly, each Fund will be a reporting issuer in each of the Jurisdictions.

4. Lawrence Park Alternative Investment Grade Credit Fund (the Lawrence Park Fund) will be sub-advised by Lawrence Park Asset Management Ltd. (Lawrence Park). Lawrence Park is a corporation subsisting under the laws of the Province of Ontario with its head office located in Toronto, Ontario. Lawrence Park is registered under the securities legislation of the Province of Ontario as a portfolio manager, investment fund manager and exempt market dealer, under the securities legislation of the Province of Québec as an investment fund manager and exempt market dealer and under the securities laws of British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia and New Brunswick as an exempt market dealer. The proposed investment objective of the Lawrence Park Fund is to generate consistent positive total returns with an emphasis on capital preservation and low correlation to traditional equity and fixed income markets. The Fund will be primarily invested in the investment grade debt of corporations and financial institutions in the developed world. The Fund will use leverage. The leverage will be created through the use of cash borrowings, short sales and derivative contracts.

5. Marret Alternative Absolute Return Bond Fund (the Marret Fund) will be sub-advised by Marret Asset Management Inc. (Marret). Marret is a corporation subsisting under the laws of the Province of Ontario with its head office located in Toronto, Ontario. Marret is registered as a portfolio manager, investment fund manager and exempt market dealer under the securities legislation of each of the provinces of Canada and under the Commodity Futures Act (Ontario) as a commodity trading manager. The proposed investment objective of the Marret Fund is to provide positive absolute returns with low volatility over a market cycle regardless of market conditions or general market direction, by primarily investing in debt instruments across the credit spectrum including cash, government debt, investment grade corporate debt, high yield debt, credit derivatives and other income-producing securities throughout the world. The Fund will use leverage. The leverage will be created through the use of cash borrowings, short sales and derivative contracts.

6. Munro Alternative Global Growth Fund (the Munro Fund) will be sub-advised by Munro Partners (Munro). Munro is a partnership with head office located in Melbourne Australia. The proposed investment objective of the Munro Fund will be to generate risk-adjusted, absolute returns through exposure to global growth equities over the medium to long term, while maintaining a capital preservation mindset. The Fund will use leverage. The leverage will be created generally through the use of short sales and derivative contracts.

7. Each of the Filer and the Funds is not in default of securities legislation in any Jurisdiction.

8. Each Fund is expected to invest in a variety of derivatives and may take both long and short positions. Each Fund’s use of derivatives may include futures (including index futures, equity futures, bond futures and interest rate futures), currency forwards, options and swaps (including equity swaps, swaps on index futures, total return swaps, and interest rate swaps). In its use of derivatives, each Fund will aim to contribute to the target return and the volatility objectives of such Fund.

9. The Funds may use leverage through a combination of one or more of the following: (i) borrowing cash for investment purposes; (ii) physical short sales of equity securities, fixed-income securities or other portfolio assets; or (iii) through the use of specified derivatives.

10. The Filer will determine each Fund’s risk rating using the CSA’s Mutual Fund Risk Classification Methodology for Use in Fund Facts and ETF Facts as set out in Appendix F of NI 81-102 (the Risk Methodology). Given that the Funds do not have an established ten-year track record, the Filer will determine the risk rating of each Fund based on the standard deviation of a reference index selected in accordance with Item 5 of the Risk Methodology. In conducting this analysis, the Filer will also consider whether it is appropriate to exercise the discretion accorded by the Risk Methodology to increase the risk rating of the particular Fund.

11. The Filer and its affiliates also manage investment funds that are subject to NI 81-102 (collectively the Top Funds). A Top Fund may seek to invest a portion its net assets in one or more Funds, provided that such investment is consistent with the Top Fund’s investment objectives and is otherwise in accordance with the requirements of NI 81-102.

12. Pursuant to a decision document dated June 23, 2010 (the Prior Decision), the Filer has exemptive relief that permits the Top Funds managed by the Filer to invest up to 10% of their respective net assets in Underlying ETFs (as defined in the Prior Decision). Each Top Fund will reduce the maximum permitted exposure to the Fund by the amount of any investment in an Underlying ETF. Certain Underlying ETFs would be considered alternative mutual funds under the Amendments (as defined below).

13. Prior to allowing a Top Fund managed by the Filer to invest in a Fund, the Filer will implement policies and procedures to monitor a Top Fund’s compliance with the investment limits that will apply to a Top Fund’s investment in the Funds (the Top Fund Policies). To the extent that a Top Fund is managed by an affiliate of the Filer, the Filer will obtain an undertaking from the affiliate confirming that it has also implemented Top Fund Policies and that the affiliate will monitor and adhere to the restrictions on Top Fund investments that are set out in the decision issued in connection with this application (the Undertaking).

14. The Filer will take steps to ensure the Fund is only distributed through dealers that are registered with the Investment Industry Regulatory Organization of Canada (IIROC) or to Top Funds managed by the Filer or its affiliates. In order to be eligible to distribute the Fund, each dealer will be required to sign an agreement with the Filer confirming its registration status with IIROC.

15. The Filer proposes to file a simplified prospectus in respect of each Fund that:

(a) identifies the Fund as an alternative fund;

(b) discloses within the Fund’s investment objectives the asset classes and strategies used which are outside the scope of the existing NI 81-102;

(c) discloses within the Fund’s investment objectives and strategies the maximum amount of leverage to be employed;

(d) discloses within the Fund’s investment strategies the maximum amount the Fund may borrow, together with a description of how borrowing will be used in conjunction with the Fund’s other strategies and a summary of the Fund’s borrowing arrangements; and

(e) discloses, in connection with Fund’s investment strategies that may be used which are outside the scope of the existing NI 81-102, how such strategies may affect investors’ chance of losing money on their investment in the Fund.

16. The Filer proposes to file an annual information form in respect of each Fund that:

(a) identifies the Fund as an alternative fund; and

(b) discloses the name of each person or company that has lent money to the Fund including whether such person or company is an affiliate or associate of the manager of the Fund.

17. The Filer proposes to file a fund facts document in respect of each Fund that:

(a) identifies the Fund as an alternative fund; and

(b) includes cover page text box disclosure to highlight how the Fund differs from other mutual funds in terms of its investment strategies and the assets it is permitted to invest in.

18. The Filer will include within each Fund’s financial statements and management reports of fund performance disclosure regarding actual use of leverage within the Fund for the applicable period referenced therein.

19. The Filer submits that the proposed disclosure in respect of each Fund accurately describes its investment strategies while emphasizing the particular strategies which are outside the scope of the existing NI 81-102.

Single Issuer Relief

20. Each Fund’s investment strategies will allow it to invest up to 20% of its net asset value in securities of a single issuer.

21. Subsection 2.1(1) of NI 81-102, does not permit a mutual fund to purchase a security of an issuer, enter into a specified derivatives transaction or purchase index participation units if, immediately after the transaction, more than 10% of its net asset value would be invested in securities of any issuer.

22. The Filer believes that it is in the best interest of each Fund to be permitted to invest up to 20% of its net assets in one issuer, as such investments will allow each Fund to fully express the convictions of the Fund’s portfolio manager.

Specified Derivatives and Debt-Like Security Relief

23. The investment strategies of each Fund contemplate flexible use of specified derivatives for hedging and/or non-hedging purposes. Each Fund has the ability to opportunistically use options, swaps, futures and forward contracts and/or other derivatives under different market conditions.

24. Under subsections 2.7(1), (2) and (3) of NI 81-102, a mutual fund cannot purchase an option (other than a clearing corporation option) or a debt-like security or enter into a swap or a forward contract unless, at the time of the transaction, the option, debt-like security, swap or contract has a designated rating or the equivalent debt of the counterparty or of a person or company that has fully and unconditionally guaranteed the obligations of the counterparty in respect of the option, debt-like security, swap or contract, has a designated rating (the Designated Rating Requirement). The policy rationale behind this is to address, at least in part, a mutual fund’s counterparty credit risk by ensuring that counterparties that enter into certain types of derivatives with mutual funds meet a minimum credit rating.

25. The Filer is seeking to have the operational flexibility to deal with a variety of over-the-counter derivative counterparties, including scenarios where at the time of the transaction, the specified derivative or equivalent counterparty (or its guarantor) will not have a designated rating. The Filer submits that this flexibility will provide more competitive pricing and give the Fund’s access to a wider variety of over-the-counter products.

26. The Filer submits that any increased credit risk which may arise due to an exemption from the Designated Rating Requirements is counterbalanced by the fact that each Fund’s mark-to-market exposure to any specified derivatives counterparty (other than for positions in cleared specified derivatives) must not exceed 10% of its net asset value for a period of 30 days or more.

27. Under section 2.8 of NI 81-102, a mutual fund must not purchase a debt-like security that has an options component, unless, immediately after the purchase, not more than 10% of its net asset value would be made up of those instruments held for purposes other than hedging. Section 2.8 also imposes a series of requirements for mutual funds to cover their specified derivatives positions for purposes other than hedging, using a combination of cash, cash equivalents, the underlying interest of the specified derivative and/or the right to acquire the underlying interest of the specified derivative (the Option and Cover Requirements).

Cash Borrowing Relief

28. The investment strategies of each Fund will permit the Fund to borrow cash in excess of the limits currently prescribed in section 2.6 of NI 81-102, provided that:

(a) the Fund may only borrow from an entity described in section 6.2 or 6.3 of NI 81-102, except that the requirement set out in paragraph 6.2(3)(a) and 6.3(3)(a) of NI 81-102 will be satisfied if the lender has equity, as reported in its most recent audited financial statements that have been made public or that will be made available to the Fund and its custodian upon request, of not less than $10,000,000 or $100,000,000, as applicable;

(b) if the lender is an affiliate of the Filer, the independent review committee of the Fund shall approve the applicable borrowing agreement under subsection 5.2(2) of NI 81-107;

(c) the borrowing agreement entered into is in accordance with normal industry practice and on standard commercial terms for the type of transaction; and

(d) the total value of cash borrowed shall not exceed 50% of the Fund’s net asset value.

29. Paragraph 2.6(a) of NI 81-102 restricts investment funds from borrowing cash or providing a security interest over portfolio assets unless the transaction is a temporary measure to accommodate redemptions, the security interest is required to enable the investment fund to effect a specified derivative transaction or short sale under NI 81-102, the security interest secures a claim for the fees and expenses of the custodian or sub-custodian of the investment fund, or, in the case of an exchange-traded mutual fund, the transaction is to finance acquisition of its portfolio securities and the outstanding amount of all borrowings is repaid on the closing of its initial public offering.

30. The Proposed Fund Investment Restrictions give investment funds the ability to borrow up to 50% of their net asset value to use for investment purposes in order to facilitate a wider array of investment strategies.

31. The Filer believes that it is in the best interests of each Fund to be permitted to borrow cash to meet its investment objectives and strategies.

Short Sale Relief

32. The investment strategies of each Fund will permit it to:

(a) sell securities short, provided the aggregate market value of securities of any one issuer sold short by the Fund other than government securities does not exceed 10% of the net asset value of the Fund, and the aggregate market value of all securities sold short by the Fund does not exceed 50% of its net asset value;

(b) sell a security short without holding cash cover; and

(c) sell a security short and use the cash from a short sale to enter into a long position in a security, other than a security that qualifies as cash cover.

33. Section 2.6.1 of NI 81-102 permits a mutual fund to sell a security short if, among other things, at the time the mutual fund sells the security short, the mutual fund has borrowed or arranged to borrow the security to be sold under the short sale, if the aggregate market value of all securities of the issuer of the securities sold short by the mutual fund does not exceed 5% of the net asset value of the mutual fund, and if the aggregate market value of all securities sold short by the fund does not exceed 20% of the net asset value of the mutual fund.

34. The Filer believes that it is in the best interests of the Funds to be permitted to sell securities short in excess of the current limits, in a manner that is consistent with the Amendments.

Performance Fee Relief

35. Section 7.1 of NI 81-102 restricts a mutual fund from paying, or enter into arrangements that would require it to pay, a fee that is determined by the performance of the mutual fund, unless: (a) the fee is calculated with reference to a benchmark or index that (i) reflects the market sectors in which the mutual fund invests according to its fundamental investment objectives, (ii) is available to persons or companies other than the mutual fund and persons providing services to it, and (iii) is a total return benchmark or index; and (b) the payment of the fee is based upon a comparison of the cumulative total return of the mutual fund against the cumulative total percentage increase or decrease of the benchmark or index for the period that began immediately after the last period for which the performance fee was paid.

36. Each Fund will be permitted to pay, or enter into arrangements that would require it to pay, a performance fee that is determined by the performance of the Fund that is based on the cumulative total return of the Fund for the period that began immediately after the last period for which such performance fee was paid.

37. The method of calculating the performance fee payable by each Fund shall be described in the Fund’s simplified prospectus.

38. The Filer believes that the proposed performance fee structure for the Funds aligns the interests of the manager or portfolio advisor with that of the investors.

39. The Filer believes that it is in the best interests of each Fund to be permitted to pay, or enter into arrangements that would require it to pay, a fee that is determined by the performance of the Fund in a manner that is consistent with the Amendments.

Custodian Relief

40. The portfolio assets of each Fund will be held in Canada with an entity described in section 6.2 of NI 81-102, except that the requirement set out in paragraph 6.2(3)(a) of NI 81-102 will be satisfied if the entity has equity, as reported in its most recent audited financial statements that have been made public or that will be made available to the Fund and its custodian (in the case of a sub-custodian) upon request, of not less than $10,000,000.

41. A portion of the assets of a Fund may be held outside Canada with a sub-custodian that satisfies the requirements of section 6.3 of NI 81-102, except that the requirement set out in paragraph 6.3(3)(a) of NI 81-102 will be satisfied if the sub-custodian has equity, as reported in its most recent audited financial statements that have been made public or that will be made available to the Fund and its custodian upon request, of not less than $100,000,000.

42. The Filer believes that it is in the best interests of the Funds to be permitted to appoint a custodian or a sub-custodian that is an affiliate of a bank or trust company and that has equity, as reported in its most recent audited financial statements that have been made public or that will be made available to the Fund and its custodian upon request, of not less than $10,000,000 (for a custodian or sub-custodian in Canada) or $100,000,000 (for a sub-custodian outside of Canada).

Total Borrowing and Short Selling

43. Each Fund will not borrow cash or sell securities short, if immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by the Fund exceeds 50% of the Fund’s net asset value.

44. If the aggregate market value of cash borrowed for investment purposes combined with the aggregate market value of all securities sold short by a Fund exceeds 50% of the Fund’s net asset value, the Fund shall, as quickly as commercially reasonable, take all necessary steps to reduce the aggregate value of the cash borrowed combined with the aggregate market value of securities sold short to 50% or less of the Fund’s net asset value.

Gross Aggregate Exposure

45. The investment objectives and strategies of each Fund will permit the gross aggregate exposure of each Fund to be up to a maximum amount of three times its net asset value, calculated on a daily basis through a combination of:

(a) the aggregate value of the Fund’s indebtedness under any borrowing agreements entered into pursuant to the Cash Borrowing Relief;

(b) the aggregate market value of securities sold short by the Fund pursuant to the Short Selling Relief; and

(c) the aggregate notional value of the Fund’s specified derivatives positions excluding any specified derivatives used for hedging purposes.

46. If the aggregate gross exposure exceeds three times a Fund’s net asset value, the Fund must, as quickly as commercially reasonable, take all necessary steps to reduce the aggregate gross exposure to three times the Fund’s net asset value or less.

Decision

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

1. the Filer files a standalone simplified prospectus, annual information form and fund facts document for the Funds, which includes the following disclosure:

(a) each of the simplified prospectus and annual information form indicate on the cover page that each Fund is an alternative fund;

(b) within the simplified prospectus, the Filer includes disclosure within each Fund’s investment objectives regarding the asset classes that the Fund may invest in and the investment strategies that the Fund may engage in pursuant to the Requested Relief, which are outside the scope of NI 81-102;

(c) within the simplified prospectus, the Filer includes disclosure in each Fund’s investment objectives describing the maximum amount of leverage to be employed by the Fund;

(d) within the simplified prospectus, the Filer includes disclosure in each Fund’s investment strategies regarding the maximum amount of borrowing and short selling that the Fund may engage in, together with a description of how borrowing and short selling will be used in conjunction with the Fund’s other strategies;

(e) within the simplified prospectus, the Filer includes disclosure in each Fund’s investment strategies explaining how the investment strategies that the Fund may engage in pursuant to the exemptive relief which are outside the scope of NI 81-102 may affect investors’ chance of losing money on their investment in the Fund;

(f) the annual information form discloses under Item 10 the name of each person or company that has lent money to the Fund including whether such person or company is an affiliate or associate of the Filer; and

(g) the fund facts document includes text box disclosure above Item 2 of Part I of Form 81-101F3 identifying each Fund as an alternative fund and highlighting how the Fund differs from other mutual funds in terms of its investment strategies and the assets it is permitted to invest in;

2. the Filer discloses in each Fund’s annual and interim financial statements and each Fund’s Management Report of Fund Performance:

(a) the lowest and highest level of leverage experienced by the Fund in the reporting period covered by the financial statements;

(b) a brief explanation of the sources of leverage used (e.g., borrowing, short selling or use of derivatives);

(c) a description of how the Fund calculates leverage; and

(d) the significance to the Fund of the lowest and highest levels of leverage;

3. in the case of the Single Issuer Relief, the Fund does not purchase a security of an issuer, enter into a specified derivatives transaction or purchase an index participation unit if, immediately after the transaction, more than 20% of its net asset value would be invested in securities of any one issuer, provided, however, this limitation shall not apply in respect of (i) a government security; (ii) a security issued by a clearing corporation; (iii) a security issued by an investment fund if the purchase is made in accordance with the requirements of section 2.5 of NI 81-102; or (iv) an index participation unit that is a security of an investment fund.

4. in the case of the Specified Derivatives Relief:

(a) each Fund’s aggregate gross exposure calculated as the sum of the following, does not exceed three times the Fund’s net asset value: (a) the aggregate value of the Fund’s indebtedness under any borrowing agreements entered into pursuant to the Cash Borrowing Relief; (b) the aggregate market value of securities sold short by the Fund pursuant to the Short Selling Relief; and (c) the aggregate notional value of the Fund’s specified derivatives positions excluding any specified derivatives used for “hedging purposes” as defined in NI 81-102;

(b) in determining each Fund’s compliance with the restriction contained in 4(a) above, the Fund includes in its calculation its proportionate shares of securities of any underlying investment funds for which a similar calculation is required;

(c) each Fund determines its compliance with the restriction contained in 4(a) above, as of the close of business of each day on which the Fund calculates a net asset value; and

(d) if a Fund’s aggregate gross exposure as determined in subsection 4(a) above exceeds three times the Fund’s net asset value, the Fund takes, as quickly as is commercially reasonable, all necessary steps to reduce the aggregate gross exposure to three times the Fund’s net asset value or less;

5. in the case of the Cash Borrowing Relief:

(a) each Fund only borrows from an entity described in section 6.2 or 6.3 of NI 81-102, except that the requirement set out in paragraph 6.2(3)(a) and 6.3(3)(a) of NI 81-102 will be satisfied if the company has equity, as reported in its most recent audited financial statements that have been made public or that will be made available to the Fund and its custodian upon request, of not less than $10,000,000 or $100,000,000, as applicable;

(b) if the lender is an affiliate of the Filer, the independent review committee approves the applicable borrowing agreement under subsection 5.2(2) of NI 81-107;

(c) the borrowing agreement entered into is in accordance with normal industry practice and on standard commercial terms for the type of transaction; and

(d) the total value of cash borrowed does not exceed 50% of each Fund’s net asset value;

6. in the case of Short Selling Relief:

(a) the aggregate market value of all securities sold short by each Fund does not exceed 50% of the net asset value of the Fund; and

(b) the aggregate market value of all securities of the issuer of the securities sold short by each Fund other than government securities does not exceed 10% of the net asset value of the Fund;

7. in the case of Custodian Relief, the portfolio assets of each Fund are only to be held in Canada with an entity described in section 6.2 of NI 81-102 or outside Canada with an entity described in section 6.3 of NI 81-102, except that the requirement set out in each of paragraph 6.2(3)(a) and 6.3(3)(a) of NI 81-102 will be satisfied if the company has equity, as reported in its most recent audited financial statements that have been made public or that will be made available to the Fund and its custodian upon request, of not less than $10,000,000 (in the case of paragraph 6.2(3)(a)) or $100,000,000 (in the case of paragraph 6.3(3)(a));

8. in the case of the Cash Borrowing Relief and the Short Selling Relief:

(a) each Fund does not borrow cash pursuant to the Cash Borrowing Relief or sell securities short pursuant to the Short Selling Relief, if immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by the Fund would exceed 50% of the Fund’s net asset value; and

(b) if the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by each Fund exceeds 50% of the Fund’s net asset value, the Fund takes, as quickly as commercially reasonable, all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short to 50% or less of the Fund’s net asset value;

9. in the case of Performance Fee Relief, each Fund must not pay, or enter into arrangements that would require it to pay, a performance fee that is determined by the performance of the Fund unless:

(a) the payment of the performance fee is based on the cumulative total return of the Fund for the period that began immediately after the last period for which such performance fee was paid; and

(b) the method of calculating the performance fee payable by each Fund shall be described in the simplified prospectus of the Fund;

10. the Filer ensures each Fund is only distributed through dealers that are registered with IIROC;

11. the Filer does not distribute securities of the Fund to other mutual funds other than the Top Funds;

12. in the case of Top Funds managed by the Filer, the Filer ensures that such Top Funds do not purchase securities of the Fund if, immediately after the transaction, either:

(a) more than 10% of the net asset value of the Top Fund, taken at market value at the time of the transaction, would consist of securities of the Fund; or

(b) the aggregate value of securities of the Fund and Underlying ETFs, taken at market value at the time of the transaction, would exceed 10% of the net asset value of the Top Fund;

13. for Top Funds managed by an affiliate of the Filer, the Filer obtains the Undertaking from its affiliate affirming that the affiliate will ensure that the Top Funds it manages will abide by the investment limits set out in condition 12 above;

14. the Filer provides the Principal Regulator with notification of all affiliates from which it has obtained an Undertaking.

This decision shall expire upon the earlier of: (i) the coming-into-force of the proposed alternative fund rule amendments to NI 81-102 published on October 4, 2018 (the Amendments), or substantially similar rules; and (ii) five years from the date of this decision.

“Darren McKall”

Darren McKall

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission

App.#2018/0479