Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions - Relief granted to a commodity pool from paragraph 2.5(2)(a) and (c) of National Instrument 81-102 Mutual Funds to permit a commodity pool to gain exposure to another commodity pool implementing a two tiered structure, subject to certain conditions. The underlying commodity pool has not filed a prospectus under National Instrument 81-101 Mutual Fund Prospectus Disclosure, but has filed a non-offering long form prospectus and will be a reporting issuer subject to National Instrument 81-106 - Investment Fund Continuous Disclosure and National Instrument 81-102 - Mutual Funds, as modified by National Instrument 81-104 - Commodity Pools.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.5(2)(a), (c), 19.1.

June 17, 2011

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
(THE JURISDICTIONS)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
FIERA SCEPTRE INC.
(the Manager)
AND
IN THE MATTER OF
FIERA SCEPTRE TACTICAL BOND YIELD FUND
(the Fund)
DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Manager on behalf of the Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption under section 19.1 of the Regulation 81-102 respecting Mutual Funds (Regulation 81-102) from the requirements in subsection 2.1(1), paragraph 2.5(2)(a) and paragraph 2.5(2)(c) of Regulation 81-102 to permit the Fund to make direct or indirect investment in securities of Fiera Sceptre Tactical Bond Fund (the Reference Fund) (the Requested Relief).

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

(a) the Autorité des marchés financiers is the principal regulator for the application herein;

(b) the Manager has provided notice that section 4.7(1) of Regulation 11-102 respecting Passport System (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions, Regulation 11-102 and Regulation 81-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

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

1. The Fund is an investment trust established under the laws of the Province of Ontario pursuant to an amended and restated trust agreement (the Trust Agreement) with RBC Dexia Investor Services Trust as trustee.

2. The Manager is the investment fund manager, portfolio manager and promoter of the Fund. Pursuant to the Trust Agreement, the Manager is responsible for providing or arranging for the provision of administrative services required by the Fund. The principal office of the Manager is located in Montreal, Québec.

3. The Fund has filed a preliminary prospectus dated March 30, 2011 with respect to the proposed continuous offering of Class A Units and Class F Units (together, the Units) of the Fund in each province and territory of Canada. The Fund does not intend to list its Units on any stock exchange.

4. The Fund will be a commodity pool as such term is defined in section 1.1 of Regulation 81-104 respecting Commodity Pools (Regulation 81-104) in that the Fund has adopted fundamental investment objective that permit the Fund to use specified derivatives in a manner that is not permitted under Regulation 81-102.

5. According to the Trust Agreement, the net asset value of the Fund will be calculated on each day on which the Toronto Stock Exchange is open for trading and such other day or days as determined from time to time by the Manager.

6. Upon the issuance of a receipt for its final prospectus and the distribution of Units thereunder, the Fund will become subject to the requirements of Regulation 81-102 and Regulation 81-104.

7. Neither the Manager nor the Fund is in default of any securities legislation in any province or territory of Canada.

8. The Fund's investment objective is to generate a moderate level of current income and capital appreciation in all market environments with minimal correlation to traditional forms of fixed income and equity investments primarily through exposure to fixed income securities. The Fund is intended to provide its uniholders with enhanced diversification and an improved risk/reward profile compared to conventional fixed income portfolios. The Fund may make its investments directly or indirectly, including by using derivatives in a manner not usually permitted by Regulation 81-102.

9. To pursue its investment objective, the Fund will obtain exposure to the returns of the Reference Fund by entering into one or more forward purchase and sale agreements (collectively, the Forward Agreement) with a Canadian chartered bank (the Counterparty) whose long-term debt will have an approved credit rating. Generally, the fund will seek to obtain exposure to the Reference Fund corresponding approximately to 100% of its net asset value. Accordingly, the return to the Fund will be referable to the return of the Reference Fund by virtue of the Forward Agreement. The Reference Fund will calculate its net asset value on a daily basis.

10. The Fund may also purchase units of the Reference Fund where the Manager is of the opinion that it would be more efficient to do so.

11. The Reference Fund is an investment trust established under the laws of the Province of Ontario pursuant to the Trust Agreement with RBC Dexia Investor Services Trust also acting as trustee for the Reference Fund.

12. The Manager is the investment fund manager, portfolio manager and promoter of the Reference Fund. Pursuant to the Trust Agreement, the Manager is responsible for providing or arranging for the provision of administrative services required by the Reference Fund.

13. The Reference Fund has filed with the AMF a non-offering preliminary prospectus. Upon the issuance of a receipt for its final non-offering prospectus, the Reference Fund will become a reporting issuer in Québec under the Securities Act, R.S.Q, c.V-1.1. The Reference Fund does not intend to list its units on any stock exchange.

14. The Reference Fund will be a mutual fund because holders of its Units will be entitled to receive, on demand, an amount computed by reference to the net asset value of the Reference Fund. However, the Reference Fund will not distribute any units under its final non-offering prospectus. Accordingly, the Reference Fund will be a mutual fund to which Regulation 81-106 respecting Investment Fund Continuous Disclosure (Regulation 81-106) applies, but will not be subject to the requirements of either Regulation 81-102 or Regulation 81-104.

15. Though not subject to Regulation 81-104, the Reference Fund will be a commodity pool as such term is defined in section 1.1 of Regulation 81-104 in that the Reference Fund has adopted fundamental investment objectives that permit it to use specified derivatives in a manner that is not permitted under Regulation 81-102.

16. The Reference Fund is not in default of any securities legislation in any province or territory of Canada.

17. The Reference Fund's investment objective is to generate a moderate level of current income and capital appreciation with minimal correlation to traditional forms of fixed income and equity investments primarily through investment in fixed income securities.

18. The Reference Fund has adopted investment restrictions as if it was subject to Regulation 81-102, to the same extent as a commodity pool that is regulated by Regulation 81-104 except that the Reference Fund may engage in short selling as more fully described below.

19. The Manager will monitor the Reference Fund's compliance with its investment restrictions. If the Manager becomes aware of any breach of these restrictions, appropriate action will be taken to bring the Reference Fund back within these limits as soon as practicable.

20. The deemed holding, pursuant to subsection 2.1(3) of Regulation 81-102, of the Units the Reference Fund by the Fund by reason of the Forward Agreement will constitute more than 10% of the net asset value of the Fund.

21. The deemed holding, pursuant to paragraph 2.5(1)(b) of Regulation 81-102, of the Units of the Reference Fund by the Fund by reason of the Forward Agreement will comply with the requirements of section 2.5 of Regulation 81-102, except as follows:

a) the Reference Fund will not be subject to Regulation 81-101 respecting Mutual Fund Prospectus Disclosure and to Regulation 81-102, as required by paragraph 2.5(2)(a) of Regulation 81-102; and

b) securities of the Reference Fund will not be qualified for distribution in the local jurisdiction, as required by paragraph 2.5(2)(c) of Regulation 81-102.

22. The Reference Fund may engage in a limited, prudent and disciplined amount of short selling. Short sales will be made by the Reference Fund consistent with the Reference Fund's investment objective. In order to effect a short sale, the Reference 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.

23. The Manager will monitor the short positions of the Reference Fund on a daily basis.

Decision

Each of the Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Maker under the Legislation is that the Requested Relief is granted, provided that:

(a) the Fund is a commodity pool subject to Regulation 81-104;

(b) the exposure of the Fund to securities of the Reference Fund is in accordance with the fundamental investment objective of the Fund;

(c) the prospectus of the Fund discloses that the Fund will obtain exposure to securities of the Reference Fund and to the extent applicable, the risks associated with such an investment;

(d) the Fund will disclose in its prospectus or in its annual information form if applicable, the manner in which short selling will be used by the Reference Fund;

(e) units of the Reference Fund will be made available only to accredited investors;

(f) the indirect investment by the Fund in securities of the Reference Fund is made in compliance with each provision of section 2.5 of Regulation 81-102, except for paragraph 2.5(2)(a) and paragraph 2.5(2)(c) of Regulation 81-102;

(g) the Reference Fund will disclose in its non-offering prospectus and annual information form:

1. a description of short selling, how the Reference Fund engages in short selling, the risks associated with short selling, and the Reference Fund's strategy with respect to short selling;

2. 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;

3. 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 Manager or other applicable parties in the risk management process;

4. the trading limits and other controls on short selling and who is responsible for authorizing the trading and placing limits or other controls on the trading;

5. whether there are individuals or groups that monitor the risks independent of those who trade; and

6. whether risk measurement procedures or simulations are used to test the portfolio under stress conditions;

(h) the Reference Fund and the Manager follow the following steps and requirements when conducting a short sale:

1. securities will be sold short for cash, with the Reference Fund assuming the obligation to return to the Borrowing Agent the securities borrowed to effect the short sale;

2. the short sale will be effected through market facilities through which the securities sold short are normally bought and sold;

3. the Reference Fund will receive cash for the securities sold short within normal trading settlement periods for the market in which the short sale is effected;

4. the securities sold short will be liquid securities that satisfy either (a) or (b) below:

(a) the securities are listed and posted for trading on a stock exchange; and

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

(ii) the Reference Fund's portfolio advisor has pre-arranged to borrow the securities for the purpose of such sale; or

(b) the securities are fixed-income securities, bonds, debentures or other evidences of indebtedness of, or guaranteed by, any issuer;

5. the aggregate market value of all securities of an issuer sold short, whether direct short positions or indirect short positions through specified derivatives, will not exceed 10% of the net asset value of the Reference Fund, on a daily marked-to-market basis;

6. the aggregate market value of all securities sold short will not exceed 40% of the net asset value of the Reference Fund on a daily marked-to-market basis;

7. the Reference Fund will deposit assets with the Borrowing Agent as security in connection with the short sale transaction;

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

9. the Reference Fund will hold cash cover in an amount, including the Reference Fund's assets deposited with the Borrowing Agent, that is at least 150% of the aggregate market value of all securities it sold short by the Reference Fund, on a daily marked-to-market basis. No proceeds from short sales will be used by the Reference Fund to purchase long positions other than cash cover;

10. for short sale transactions in Canada, every dealer that holds Reference Fund assets as security in connection with short sale transactions by the Reference 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;

11. for short sale transactions outside Canada, every dealer that holds Reference Fund assets as security in connection with the short sale must be a member of a stock exchange and, as a result, be subject to a regulatory audit, and 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;

12. the security interest provided by the Reference 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 short sale transactions;

13. the Reference Fund and the Manager will maintain appropriate internal controls regarding short sales prior to conducting any short sales, including written policies and procedures and risk management controls;

14. the Reference Fund and the Manager will keep proper books and records of all short sales and Reference Fund assets deposited with Borrowing Agents as security; and

(i) Upon the coming into force of any legislation or rule of the Decision Maker dealing with matters referred to in subsections 2.6(a), 2.6(c) and 6.1(1) of Regulation 81-102, the Reference Fund will modify the manner in which it conducts short sales to comply with such legislation or rule.

"Josée Deslauriers"
Director, Investment Funds and Continuous Disclosure
Autorité des marchés financiers