Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Relief granted from seed capital requirements for commodity pools in NI 81-104 - Manager permitted to redeem $50,000 seed capital investment in each Pool provided the Pool has received subscriptions from investors other than the Manager totalling at least $5.0 million and provided the Manager maintain $100,000 in excess working capital - Paragraph 3.2(2)(a) of NI 81-104.

Applicable Legislative Provisions

National Instrument 81-104 Commodity Pools, ss. 3.2(2)(a), 10.1.

July 4, 2011

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUEBEC 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 10.1 of the Regulation 81-104 respecting Commodity Pools (Regulation 81-104) from the requirements of paragraph 3.2(2)(a) of the Regulation 81-104, which requires a commodity pool to have invested in it, at all times, securities that were issued pursuant to paragraph 3.2(1)(a) and have an aggregate issue price of $50 000 (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 11-102, Regulation 14-101 respecting Definitions, Regulation 81-102 respecting Mutual Funds (Regulation 81-102) and Regulation 81-104 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, Quebec. Securities of the Manager are listed on the Toronto Stock Exchange under the Symbol "FSZ".

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 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. Concurrently with the application herein, the Manager filed an application on behalf of the Fund for a decision under the Legislation granting an exemption from the requirements in subsection 2.1(1), paragraph 2.5(2)(a) and paragraph 2.5(2)(c) of Regulation 81-102.

6. 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.

7. 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.

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

9. 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 to its unitholders 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.

10. To pursue its investment objective, the Fund will obtain exposure to the returns of Fiera Sceptre Tactical Bond Fund (the Reference Fund) by entering into one or more forward purchase and sale agreements (collectively, the Forward Agreement) with a Canadian chartered bank 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.

11. Though not subject to the 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.

12. 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. The Reference Fund is intended to provide to its unitholders with enhanced diversification and an improved risk/reward profile compared to conventional fixed income portfolios.

13. The units of the Reference Fund will be made available only to accredited investors.

14. 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.

15. Paragraph 3.2(2)(a) of Regulation 81-104 states that a commodity pool may redeem, repurchase or return any amount invested in, securities issued upon the investment in the commodity pool referred to in paragraph 3.2(1)(a) of Regulation 81-104 only if securities issued under paragraph 3.2(1)(a) of Regulation 81-104 that had an aggregate issue price of $50,000 remain outstanding and at least $50,000 invested under paragraph 3.2(1)(a) remains invested in the commodity pool.

16. If the Fund was governed by the provisions of Regulation 81-102, the Fund would be allowed to redeem securities issued upon the seed capital investment in the Fund made by the Manager upon the Fund having received subscriptions totaling not less than $500,000 from persons other than the persons referred to in paragraph 3.1(1)(a) of Regulation 81-102.

17. The Manager wishes the Fund to redeem the seed capital invested in the Fund subject to the conditions set out in this decision.

18. The Manager understands that the policy rationale behind the permanent seed capital requirement for commodity pools under Regulation 81-104 is to encourage promoters to ensure that the commodity pool is being properly run for the benefit of the investors by requiring that the promoter of a commodity pool, or a related party, will itself be an investor in the commodity pool at all times.

19. The Manager is obliged in accordance with the Legislation, to at all times act honestly and in good faith, and in the best interests of the Fund, and exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

20. Not having $50,000 invested in the Fund at all times will not change how the Manager manages the Fund. The Manager will manage the Fund and the Reference Fund in accordance with the Legislation and contractual requirements.

21. The Manager, as investment fund manager, will at all times maintain excess working capital with of a minimum capital of $100,000 or any higher amount that maybe required in compliance with Regulation 31-103 respecting Registration Requirements and Exemptions.

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 Manager may not ask the Fund to redeem securities issued upon the seed capital investment of at least $50 000 in the Fund made by the Manager upon the Fund having received subscriptions totaling not less than $5 000 000 from persons other than the persons referred to in paragraph 3.2(l)(a) of the Regulation 81-104;

(b) the Fund will disclose in its prospectus or in its annual information form if applicable, the basis on which the Fund may redeem securities issued upon the seed capital investment of at least $50,000 in the Fund made by the Manager;

(c) if, after the Fund has redeemed securities issued upon the seed capital investment of at least $50 000 in the Fund made by the Manager, the value of the Units subscribed for by investors other than the persons referred to in paragraph 3.2(l)(a) of the Regulation 81-104 drops below $5 000 000 for more than 30 consecutive days, the Manager shall, unless the Fund is in the process of being dissolved or terminated, reinvest $50,000 in the securities of the Fund and maintain that investment until condition (a) is again satisfied.

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