Navina Capital Corp. et al.

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Fund of fund -- top fund is a closed-end fund that holds forward contract providing tax efficient exposure to the bottom fund -- bottom fund is a mutual fund -- relief granted to permit both funds to engage in short selling of up to 20% of net assets, subject to certain conditions and requirements -- bottom fund to short sell portfolio securities immediately -- top fund intends to convert to a mutual fund subject to NI 81-102 -- top fund may be required to short sell to meet its investment objectives and strategies if forward agreement terminated after conversion -- standard conditions imposed on the amount and nature of short-selling conducted by the funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.6(a), 2.6(c), 6.1(1), 19.1.

March 5, 2010

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

NAVINA CAPITAL CORP.

(the Filer),

AND

LAZARD GLOBAL CONVERTIBLE BOND FUND

(the Top Fund) AND LAZARD STRATEGIC GLOBAL

CONVERTIBLE BOND TRUST (the Bottom Fund and,

together with the Top Fund, the Funds,

and individually, a Fund)

DECISION

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) exempting the Bottom Fund, and, following Conversion (as defined below), the Top Fund from the following requirements of National Instrument 81-102 -- Mutual Funds (NI 81-102) (the Exemption Sought):

(a) subsection 2.6(a) of NI 81-102 to permit a Fund to provide a security interest over such Fund's assets;

(b) subsection 2.6(c) of NI 81-102 to permit a Fund to sell securities short; and

(c) subsection 6.1(1) of NI 81-102 to permit a Fund to deposit its assets with an entity other than such Fund's custodian.

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 each of the provinces of Canada other than the province of Ontario (together with the Jurisdiction, the Jurisdictions).

Interpretation

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

Representations

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

Organization and Structure

1. The Filer is the manager of the Funds. The head office of the Filer is located in Ontario. The Filer and the Funds are not in default of securities legislation in any jurisdiction.

2. The Filer has retained Lawrence Asset Management Inc. (the Investment Manager) to provide investment advisory and portfolio management services to the Funds. The Investment Manager is registered in Ontario in the category of Portfolio Manager. The Investment Manager has retained Lazard Asset Management LLC to provide investment advisory and portfolio management services to the Bottom Fund.

3. On December 9, 2009, the Top Fund completed an offering of its units to the public on a best efforts basis pursuant to a final long form prospectus dated November 25, 2009 (the Top Fund Prospectus) and filed in each of the Jurisdictions (the Offering). The units of the Top Fund are listed and posted for trading on the Toronto Stock Exchange.

4. The Top Fund is a closed-end investment trust governed by the laws of the Province of Ontario. The Top Fund's investment objectives are to provide its unitholders with: (a) monthly tax-efficient distributions initially targeted to be $0.0583 per unit ($0.70 per annum to yield 7.0% on the $10.00 per unit issue price); and (b) the opportunity for capital appreciation by obtaining exposure to an actively managed portfolio comprised primarily of U.S. dollar denominated global convertible bonds (the Portfolio). The Top Fund will obtain exposure to the Portfolio by entering into the Forward Agreement (as defined below).

5. The Top Fund invested the net proceeds of the Offering in a portfolio of common shares of Canadian public companies (the Common Share Portfolio). The Top Fund then entered into a forward agreement (the Forward Agreement) with a Canadian chartered bank or an affiliate of a Canadian chartered bank whose obligations are guaranteed by a Canadian chartered bank (the Counterparty). Pursuant to the Forward Agreement, the Counterparty agreed to pay to the Top Fund on the business day immediately prior to Conversion (the Forward Termination Date), as the purchase price for the Common Share Portfolio, an amount based on the value of either: (i) the units of the Bottom Fund; or (ii) a notional portfolio comprised primarily of U.S. dollar denominated global convertible bonds managed by the Investment Manager. The Top Fund will partially settle the Forward Agreement prior to the Forward Termination Date in order to fund monthly distributions as well as redemptions of its units and for payment of expenses of the Top Fund.

6. It is intended that on or about June 30, 2011, the Top Fund will automatically convert to an open-end mutual fund and de-list its units which will become redeemable daily at their net asset value per unit (the Conversion). The Filer intends to extend the Forward Agreement beyond Conversion.

7. After Conversion, the Top Fund will be governed by, and operate in accordance with, NI 81-102. To the extent that the portfolio of the Top Fund, the Top Fund's investment practices or any other aspect of its operations are not compliant with NI 81-102, the Filer will apply for exemptive relief or else will conform its portfolio, practices and/or operations to comply with the requirements of NI 81-102.

8. Following Conversion, the Filer expects to cause the Top Fund to prepare and file a simplified prospectus under Form 81-101F1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) in each of the Jurisdictions for the issue of additional units to be issued and sold on a continuous basis at their net asset value per unit.

9. The Bottom Fund is an open-end investment trust governed by the laws of Ontario established to acquire the Portfolio.

10. Units of the Bottom Fund will not be listed on an exchange and will be redeemable daily at their net asset value per unit. In anticipation of the Conversion and the resulting application to the Top Fund, as an open-end mutual fund, of NI 81-102, the Bottom Fund wished to attract the application of NI 81-102. To that end, the Bottom Fund has issued one unit to the Filer for nominal consideration pursuant to a final long form prospectus dated November 26, 2009 (the Bottom Fund Prospectus) and filed in the provinces of Ontario and Québec, which unit was subsequently redeemed by the Bottom Fund.

11. As a result, the Bottom Fund is a mutual fund under securities legislation, subject to NI 81-102. However, the operations of the Bottom Fund will differ from those of a conventional mutual fund. Unlike a conventional mutual fund, the Bottom Fund does not intend to issue units on a continuous basis under the Bottom Fund Prospectus. The Bottom Fund has issued one unit to the Filer under the Bottom Fund Prospectus and no other units of the Bottom Fund will be issued under the Bottom Fund Prospectus.

12. The Bottom Fund has obtained relief from the principal regulator under the securities legislation of the Jurisdiction exempting the Bottom Fund from Section 2.1 of NI 81-101 to permit the Bottom Fund to qualify its units for distribution by filing the Bottom Fund Prospectus in the form of Form 41-101F2 prescribed under National Instrument 41-101 -- General Prospectus Requirements, rather than by simplified prospectus using Form 81-101F1 prescribed under NI 81-101.

13. The Filer has undertaken to cause the Bottom Fund to file a simplified prospectus with the securities regulators in each of the provinces of Canada pursuant to NI 81-101 prior to Conversion as contemplated in the Top Fund Prospectus unless otherwise confirmed by the principal regulator.

14. The Filer proposes the Funds be permitted to engage in short selling. The Filer is of the view that the implementation of short selling by a Fund will assist such Fund in achieving its investment objective(s).

15. The Bottom Fund Prospectus discloses that the Bottom Fund has applied for the Exemption Sought to be permitted to engage in short selling and that any short-selling by the Bottom Fund will be subjects to the terms and conditions of this relief.

16. Any short sales made by a Fund will be consistent with Fund's investment objective(s).

17. In order to effect a short sale, a Fund will borrow securities from either its custodian or a dealer (in either case, the Borrowing Agent), which Borrowing Agent may be acting either as principal for its own account or as agent for other lenders of securities.

18. A Fund will implement the following controls when conducting a short sale:

(a) securities will be sold short for cash, with the Fund assuming the obligation to return to the Borrowing Agent the securities borrowed to effect the short sale;

(b) the short sale will be effected through market facilities through which the securities sold short are normally bought and sold;

(c) the Fund will receive cash for the securities sold short within normal trading settlement periods for the market in which the short sale is effected;

(d) the securities sold short will be "liquid securities" that:

(i) are listed and posted for trading on a stock exchange, and

(A) the issuer of the security has a market capitalization of not less than CDN$300 million, or the equivalent thereof, of such security at the time the short sale is effected; or

(B) the investment advisor has pre-arranged to borrow for the purposes of such short sale;

or

(ii) are fixed income securities, bonds, debentures or other evidences of indebtedness of or guaranteed by the Government of Canada or any province or territory of Canada or the Government of the United States of America;

(e) at the time securities of a particular issuer are sold short:

(i) the aggregate market value of all securities of that issuer sold short by the Fund will not exceed 5% of the net assets of the Fund; and

(ii) the Fund will place a stop-loss order with a dealer to immediately purchase for the Fund an equal number of the same securities if the trading price of the securities exceeds 120% (or such lesser percentage as the Filer may determine) of the price at which the securities were sold short;

(f) the Fund will deposit Fund assets with the Borrowing Agent as security in connection with the short sale transaction;

(g) the Fund will keep proper books and records of all short sales and Fund assets deposited with Borrowing Agents as security; and

(h) the Fund will develop written policies and procedures for the conduct of short sales prior to conducting any short sales.

19. The Top Fund and the Bottom Fund have provided disclosure in the Top Fund Prospectus and the Bottom Fund Prospectus, respectively and will provide disclosure in any simplified prospectus and annual information form they file pursuant to NI 81-101 and any amendment thereto, of the short selling strategies and the details of this exemptive relief prior to implementing the short selling strategy.

20. In the absence of being granted the Exemption Sought, the Bottom Fund, and, following Conversion, the Top Fund may not provide a security interest over such Fund's assets, sell securities short or deposit its assets with an entity other than such Fund's custodian.

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 aggregate market value of all securities sold short by the Fund does not exceed 20% of the net assets of the Fund on a daily marked-to-market basis;

(b) any short sale made by the Fund is subject to compliance with the investment objective(s) of the Fund;

(c) the Fund maintains appropriate internal controls regarding its short sales including written policies and procedures, risk management controls and proper books and records;

(d) the Fund holds "cash cover" (as defined in NI 81-102) in an amount, including the Fund assets deposited with the Borrowing Agents as security in connection with short sale transactions, that is at least 150% of the aggregate market value of all securities sold short by the Fund on a daily marked-to-market basis;

(e) at the time securities of a particular issuer are sold short by the Fund, the aggregate market value of all securities of that issuer sold short will not exceed 5% of the net assets of the Fund;

(f) no proceeds from short sales by the Fund are used by the Fund to purchase long positions in securities other than cash cover;

(g) for short sale transactions of the Fund in Canada, every dealer that holds Fund assets as security in connection with short sale transactions by the Fund shall be a registered dealer in Canada and a member of a self-regulatory organization that is a participating member of the Canadian Investor Protection Fund;

(h) for short sale transactions of the Fund outside of Canada, every dealer that holds Fund assets as security in connection with short sale transactions by the Fund shall:

(i) be a member of a stock exchange and, as a result, be subject to a regulatory audit; and

(ii) have a net worth in excess of the equivalent of CDN$50 million determined from its most recent audited financial statements that have been made public;

(i) except where the Borrowing Agent is a Fund's custodian or a sub-custodian thereof, when the Fund deposits Fund assets with a Borrowing Agent as security in connection with a short sale transaction, the amount of Fund assets deposited with the Borrowing Agent does not, when aggregated with the amount of Fund assets already held by the Borrowing Agent as security for outstanding short sale transactions of the Fund, exceed 10% of the net assets of the Fund, taken at market value as at the time of the deposit;

(j) the security interest provided by the Fund over any of its assets that is required to enable the Fund to effect short sale transactions is made in accordance with industry practice for that type of transaction and relates only to obligations arising under such short sale transactions;

(k) the Bottom Fund, and prior to conducting any short sales the Top Fund, discloses in its simplified prospectus and any amendment thereto a description of: (i) short selling, (ii) how the Fund intends to engage in short selling, (iii) the risks associated with short selling, and (iv) in the Investment Strategy section of its simplified prospectus, the Fund's strategy and this exemptive relief;

(l) the Bottom Fund, and prior to conducting any short sales the Top Fund, discloses in its annual information form or any amendment thereto the following information:

(i) that there are written policies and procedures in place that set out the objectives and goals for short selling and the risk management procedures applicable to short selling;

(ii) who is responsible for setting and reviewing the policies and procedures referred to in the preceding paragraph, how often the policies and procedures are reviewed, and the extent and nature of the involvement of the trustee in the risk management process;

(iii) the trading limits or other controls on short selling in place and who is responsible for authorizing the trading and placing limits or other controls on the trading;

(iv) whether there are individuals or groups that monitor the risks independent of those who trade; and

(v) whether risk measurement procedures or simulations are used to test the portfolio under stress conditions.

The Exemption Sought shall terminate upon the coming into force of any legislation or rule of the principal regulator dealing with the matters referred to in subsection 2.6(a), 2.6(c) and 6.1(1) of NI 81-102.

"Darren McKall"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission