Performance Capital Limited et al.

Headnote

Relief granted from the mutual fund conflict of interest investment restrictions of the Securities Act (Ontario) to permit a pooled fund to employ a fund-on-fund structure and invest in underlying funds under common management.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 111(2)(b), 111(2)(c)(i), 111(2)(c)(ii), 111(3), 113, 117.

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5(2)(a), 13.5(2)(b), 15.1.

National Instrument 81-106 Investment Fund Continuous Disclosure, s. 17.1.

February 24, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

PERFORMANCE CAPITAL LIMITED

(the Manager)

AND

PERFORMANCE DIVERSIFIED FUND

PERFORMANCE GROWTH FUND

(the Initial Top Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Manager, on its behalf and on behalf of the Initial Top Funds and any other investment fund which is not a reporting issuer under the Securities Act (Ontario) (the Act) established, advised or managed by the Manager after the date hereof (the Future Top Funds and, together with the Initial Top Funds, the Top Funds), for a decision under the securities legislation of the Jurisdiction (the Legislation), exempting the Manager and the Top Funds from paragraph 111(2)(b) and subsection 111(3) of the Act which prohibit the following:

(a) 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; and

(b) a mutual fund, its management company or its distribution company from knowingly holding an investment described in paragraph (a) above

(collectively, the Requested Relief).

Interpretation

Defined terms contained in National Instrument 14-101 Definitions 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:

Manager

1. The Manager is a corporation incorporated under the laws of the Province of Ontario and has its head office in Toronto, Ontario.

2. The Manager is registered as an investment fund manager, portfolio manager and exempt market dealer in Ontario.

3. Pursuant to separate management agreements (the Management Agreements), the Manager is the investment fund manager and portfolio manager of each of the Initial Top Funds, will be the investment fund manager and portfolio manager of the Future Top Funds, is or will be responsible for managing the assets of the Top Funds, has or will have complete discretion to invest and reinvest or to arrange for the investment and reinvestment of the Top Funds' assets, and is or will be responsible for executing or arranging for the execution of all portfolio transactions in respect of the Top Funds.

4. Pursuant to the Management Agreements, the Manager has the power and authority to appoint a portfolio manager to manage the investment portfolios of the Initial Top Funds and will have the power and authority to appoint portfolio managers to manage the investment portfolios of the Future Top Funds.

5. The Manager is not a reporting issuer in any jurisdiction of Canada and, except as noted in paragraph 14 below, is not in default of securities legislation of any jurisdiction of Canada.

Top Funds

6. Each Initial Top Fund is a limited partnership formed under the laws of Ontario by a declaration of limited partnership.

7. Each Initial Top Fund is, and each Future Top Fund will be, a mutual fund for the purposes of the Act.

8. Securities of each of the Initial Top Funds are, and securities of each of the Future Top Funds will be, sold pursuant to available prospectus exemptions in accordance with National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).

9. The Initial Top Funds are not reporting issuers under the Act and, except as noted in paragraph 14 below, are not in default of securities legislation of any jurisdiction of Canada. None of the Future Top Funds will be a reporting issuer under the Act.

Fund-on-Fund Structure

10. The Top Funds provide investors with exposure to the investment portfolios of underlying funds (the Underlying Funds) and their respective investment strategies. The Top Funds will primarily invest directly in the securities of the Underlying Funds (the Fund-on-Fund Structure).

11. Each of the Underlying Funds has, or will have, separate investment objectives, strategies and investment restrictions.

12. Securities of each of the Underlying Funds, are, or will be, sold pursuant to available prospectus exemptions in accordance with NI 45-106.

13. To achieve their investment objectives, each Initial Top Fund invests in Underlying Funds which are managed by various alternative strategy fund managers, thereby creating a diversified portfolio of alternative strategy funds, including many newly established funds in the Canadian marketplace.

14. Through inadvertence, each of the Initial Top Funds currently is, alone or together with the other Initial Top Fund, a substantial security holder of one or more Underlying Funds contrary to the Legislation. The Funds were initially launched as venture capital issuers and were not considered to be subject to paragraph 111(2)(b) and subsection 111(3) of the Act. The inadvertence was noted in OSC's letter dated November 25, 2009. Since then, the Manager has addressed the deficiencies noted in that letter, including requesting relief from paragraph 111(2)(b) and subsection 111(3) of the Act, and has strengthened its internal control systems to ensure future compliance with applicable laws and regulations.

15. The Manager believes that the Fund-on-Fund Structure provides an efficient and cost-effective manner of pursuing portfolio diversification on behalf of the Top Funds, rather than through the direct purchase of securities or the use of managed accounts with the various fund managers (which would yield the same results with greater administrative cost to both the Top Funds and the Underlying Funds' managers). Through investing in the Underlying Funds, the Top Funds will be able to achieve greater diversification at a lower cost than investing directly in the securities held by the applicable Underlying Funds.

16. The Fund-on-Fund Structure will allow investors with smaller investments to have access to a larger variety of investments than would otherwise be available.

17. Investment by the Top Funds in the Underlying Funds will increase the asset base of the Underlying Funds, enabling the Underlying Funds to further diversify their portfolios to the benefit of all their investors. The larger asset base will also benefit investors in the Underlying Funds through achieving favourable pricing and transaction costs on portfolio trades, increased access to investments where there is a minimum subscription or purchase amount, and economies of scale through greater administrative efficiency.

18. Purchasers of securities of a Top Fund may subscribe for securities of the Top Funds pursuant to a subscription agreement (the "Subscription Agreement").

19. Prior to the execution of the Subscription Agreement, the purchaser will be provided with a copy of the Top Fund's offering memorandum or, if no offering memorandum is prepared in respect of the Top Fund, will be provided with details about the Top Fund and given disclosure respecting relationships and potential conflicts of interest between the Top Fund and the applicable Underlying Funds.

20. Each of the Top Funds will prepare annual audited financial statements and interim unaudited financial statements in accordance with National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") and will otherwise comply with the requirements of NI 81-106 applicable to them. The holdings by a Top Fund of securities of an Underlying Fund will be disclosed in the financial statements of the Top Fund.

21. Securityholders of a Top Fund will receive, on request, a copy of the offering document of the Underlying Funds, if available, and the audited annual financial statements and interim unaudited financial statements of any Underlying Fund in which the Top Fund invests.

22. The amounts invested from time to time in an Underlying Fund by a Top Fund may exceed 20% of the outstanding voting securities of the Underlying Fund. As a result, each Top Fund could, either alone or together with other Top Funds, become a substantial security holder of an Underlying Fund. The Top Funds are, or will be, related mutual funds by virtue of the common management by the Manager.

23. In the absence of the Requested Relief, the Top Funds would be precluded from implementing the Fund-on-Fund Structure due to certain investment restrictions in the Legislation.

24. The actual weightings of the investment by a Top Fund in an Underlying Fund will be reviewed and adjusted by the Manager to ensure that the investment weighting continues to be appropriate for the Top Fund's investment objectives.

25. Any investment made by a Top Fund in an Underlying Fund will be aligned with the investment objectives, investment strategy, risk profile and other principal terms of the Top Fund.

26. A Top Fund's investments in the Underlying Funds represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Top Funds.

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 Requested Relief is granted provided that:

(a) securities of a Top Fund are distributed in Canada solely pursuant to exemptions in accordance with National Instrument 45-106 Prospectus and Registration Exemptions;

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

(c) no Top Fund will invest in an Underlying Fund unless the Underlying Fund invests less than 10% of its net assets in other mutual funds other than mutual funds that are money market funds or that issue index participation units;

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

(e) no sales fees or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of securities of an Underlying Fund that is managed by the the investment fund manager or the portfolio manager of that Top Fund;

(f) where an Underlying Fund is managed or advised by the same investment fund manager or portfolio manager as the Top Fund, the investment fund manager or portfolio manager, as applicable, does not cause the securities of the Underlying Fund held by a Top Fund to be voted at any meeting of the securityholders of an Underlying Fund, except that a Top Fund may arrange for the securities it holds of an Underlying Fund to be voted by the beneficial holders of securities of the Top Fund;

(g) the offering memorandum (or similar document) of each Top Fund discloses:

(i) that the Top Fund may purchase securities of the Underlying Funds;

(ii) that the Underlying Funds may be managed and/or advised by the same investment fund manager and/or portfolio manager as the Top Funds, as applicable;

(iii) the approximate or maximum percentage of net assets of the Top Fund that will be invested in securities of each Underlying Fund; and

(iv) the process or criteria used to select the Underlying Funds.