Securities Law & Instruments

Headnote

NP 11-203 -- Relief from mutual fund self-dealing investment restrictions -- restriction prohibiting a mutual fund from knowingly making an investment in any person or company in which the mutual fund, alone or together with one or more related mutual funds, is a "substantial security holder" -- Relief granted to pooled funds for proposed investments in an underlying pooled fund, subject to certain conditions

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(3), 113.

October 28, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS OF EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

ROBSON CAPITAL MANAGEMENT INC.

(the "Filer")

AND

ROBSON ALPHA SCOUT FUND

(the "First Top Fund")

DECISION

Background

The principal regulator in the Jurisdiction (the "Decision Maker") has received an application from the Filer on its behalf and on behalf of the First Top Fund and any mutual fund which is not a reporting issuer and may be established, advised or managed by the Filer in the future (together with the First Top Fund, the "Top Funds") which invests its assets in The Alpha Scout Fund (the "Underlying Fund") for a decision under the securities legislation of the principal regulator (the "Legislation") exempting the Top Funds and the Filer from:

(a) the restriction in the Legislation which 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;

(b) the restriction in the Legislation which prohibits a mutual fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) above (this paragraph (b), together with paragraph (a) above are referred to in this decision as 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 Alberta.

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:

Filer

1. The Filer is a corporation established under the laws of Ontario with its head office located in Toronto, Ontario.

2. The Filer is registered with the Ontario Securities Commission as an adviser in the categories of investment counsel and portfolio manager and as dealer in the category of a limited market dealer.

3. The Filer will be the trustee and portfolio manager for the Top Funds and will be responsible for managing the business and affairs of the Top Funds. The Filer will also provide portfolio advisory services to the Top Funds.

4. The Filer is not a reporting issuer in any jurisdiction and is not, to its knowledge, in default of securities legislation of any jurisdiction.

Underlying Fund

5. The Underlying Fund is a limited partnership established under the laws of the Province of Ontario by declaration dated February 8, 2005.

6. The general partner of the Underlying Fund is Alpha Three Limited (the "General Partner"), and is responsible for managing the ongoing business and administrative affairs of the Underlying Fund. The General Partner has engaged an affiliate of the General Partner, Artemis Investment Management Limited, as investment advisor to the Underlying Fund.

7. The Underlying Fund was formed for the purpose of earning a positive absolute return on capital through investment in hedge funds, commodity pools or other private or public investment vehicles, investment companies, funds of funds or other investment entities that may invest or trade in securities of any kind, as well as direct investments in securities of any kind including financial instruments or derivatives. The Underlying Fund does not invest in investment entities managed by the Filer or its affiliates.

8. Securities of the Underlying Fund are sold under the terms and provisions of an offering memorandum in Canada's private placement markets in accordance with National Instrument 45-106 Prospectus and Registration Exemptions.

9. The Underlying Fund is not a reporting issuer in any jurisdiction and is not, to its knowledge, in default of securities legislation of any jurisdiction.

Top Funds

10. The First Top Fund is an open-end investment trust created under the laws of the Province of Ontario pursuant to a declaration of trust dated as of January 19, 2006, as amended and restated as of January 31, 2008, and as further amended and restated as of September 30, 2009.

11. The First Top Fund is sold under the terms and provisions of an offering memorandum in Canada's pursuant to prospectus exemptions.

12. The First Top Fund was formed for the purpose of capital appreciation primarily through investments in hard asset securities and hard asset commodities. The Filer changed the First Top Fund's investment objective to capital appreciation primarily through investments in underlying hedge funds, which will be achieved primarily by investing in securities of the Underlying Fund. The effective date of this change was September 30, 2009 at which time the First Top Fund, originally named the "Robson Van Eck Hard Assets Fund", was renamed the "Robson Alpha Scout Fund".

13. The First Top Fund is not a reporting issuer in any jurisdiction and is not, to its knowledge, in default of securities legislation of any jurisdiction.

Fund-on-Fund Structure

14. The First Top Fund's investment objective was changed to allow investors in the First Top Fund to obtain indirect exposure to the investment portfolio of the Underlying Fund and its investment strategies through, primarily, direct investments by the First Top Fund in securities of the Underlying Fund (the "Fund-on-Fund Structure"). Unlike the Underlying Fund, which is a limited partnership, the First Top Fund was formed as a trust for the purposes of accessing a broader base of investors, including RRSPs and other investors that may not or wish not to invest directly in a limited partnership.

15. The Filer believes that the Fund-on-Fund Structure will provide added portfolio diversification opportunities on behalf of each Top Fund and it is anticipated that this will result in an increase in invested capital in the Top Fund.

16. For the purpose of implementing the Fund-on-Fund Structure, the Filer shall ensure that:

(i) the arrangements between or in respect of each Top Fund and the Underlying Fund are such as to avoid the duplication of management fees or incentive fees;

(ii) no sales fees or redemption fees are payable by the Top Fund in relation to its purchases or redemptions of securities of the Underlying Fund;

(iii) the Filer will not vote the securities of the Underlying Fund held by a Top Fund at any meeting of holders of such securities;

(iv) the offering memorandum of each Top Fund will describe the Top Fund's intent, or ability, to invest in securities of the Underlying Fund; and

(v) upon request, investors in each Top Fund will be provided with a copy of the Underlying Fund's offering memorandum or its annual or semi-annual financial statements.

17. Because of the proposed size of the investment by the Top Funds in the Underlying Fund, each Top Fund could, either alone or together with the other Top Funds, become a substantial securityholder of the Underlying Fund.

Generally

18. In the absence of this Decision, the Top Funds would be precluded from implementing the Fund-on-Fund Structure due to certain investment restrictions contained in the Legislation.

19. The Fund-on-Fund Structure represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of each Top 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, in connection with each Top Fund:

(a) securities of the Top Fund are distributed in Canada's private placement markets pursuant to exemptions from the prospectus requirements;

(b) the investment by the Top Fund in the Underlying Fund is compatible with the fundamental investment objectives of the Top Fund;

(c) no investment management fees or incentive fees are payable by the Top Fund that, to a reasonable person, would duplicate a fee payable by the Underlying Fund for the same service;

(d) no sales fees or redemption fees are payable by the Top Fund in relation to its purchases or redemptions of securities of the Underlying Fund;

(e) the Filer will not vote the securities of the Underlying Fund held by the Top Fund at any meeting of holders of such securities; and

(f) if available, the offering memorandum (or other similar document) of a Top Fund will disclose:

(i) that the Top Fund may purchase units of the Underlying Fund; and

(ii) the approximate or maximum percentage of net assets of the Top Fund that it is intended be invested in securities of the Underlying Fund.

"Margot C. Howard"
Commissioner
Ontario Securities Commission
 
"Kevin J. Kelly"
Commissioner
Ontario Securities Commission