Securities Law & Instruments

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Funds offering exchange-traded classes/series and conventional mutual fund classes/series within same fund structure -- Relief granted from subparagraph 2.6(1)(a)(i) of NI 81-102 to allow mutual funds to borrow cash from their custodian to fund the portion of any distributions payable under the mutual funds' distribution policy that represents amounts that are owing to, but not yet been received by, the mutual funds -- Technical relief granted from Parts 9, 10 and 14 of NI 81-102 to permit each fund to treat its exchange-traded classes/series and conventional mutual fund classes/series as if each such class/series was a separate fund for the purpose of compliance with Parts 9, 10 and 14 of NI 81-102 -- National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, paragraph 2.6(1)(a), Parts 9, 10 and 14, and s. 19.1.

October 7, 2020

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 NINEPOINT PARTNERS LP (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of each of the funds listed on Schedule A hereto being a mutual fund (collectively, the Existing Mutual Funds) or an alternative mutual fund (collectively, the Existing Alternative Mutual Funds, and together with the Existing Mutual Funds, the Existing Funds) and such other mutual funds (collectively with the Existing Mutual Funds, the Mutual Funds) or alternative mutual funds as are managed and may be managed by the Filer now or in the future that offer ETF Securities (as defined below) and Mutual Fund Securities (as defined below) (collectively with the Existing Funds, the Funds, and each a Fund) for a decision under the securities legislation of the Jurisdiction (the Legislation) that grants exemptive relief to the Filer and each Fund as set forth below (collectively, the Exemptions Sought):

(a) an exemption from subparagraph 2.6(1)(a)(i) of National Instrument 81-102 Investment Funds (NI 81-102) (the Borrowing Restriction) to permit each Mutual Fund to borrow cash from the custodian of the Mutual Fund (the Custodian) and, if required by the Custodian, to provide a security interest over any of its portfolio assets as a temporary measure to fund the portion of any distribution payable to Securityholders (as defined below) that represents, in the aggregate, amounts that are owing to, but have not yet been received by, the Mutual Fund; and

(b) an exemption from the provisions of Parts 9, 10 and 14 of NI 81-102 (the Sales and Redemptions Requirements) to permit the Filer and each Fund to treat the ETF Securities and the Mutual Fund Securities (as defined below) as if such securities were separate funds for the purposes of compliance with the provisions of the Sales and Redemptions Requirements

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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, NI 81-102 and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Affiliate Dealer means a registered dealer that is an affiliate of an Authorized Dealer or Designated Broker and that participates in the re-sale of Creation Units (as defined below) from time to time.

Authorized Dealer means a registered dealer that has entered, or intends to enter, into an agreement with the manager of a Fund authorizing the dealer to subscribe for, purchase and redeem Creation Units from one or more Funds on a continuous basis from time to time.

Basket of Securities means, in relation to the ETF Securities of a Fund, a group of securities or assets representing the constituents of the Fund.

Designated Broker means a registered dealer that has entered, or intends to enter, into an agreement with the Filer or an affiliate of the Filer on behalf of a Fund to perform certain duties in relation to the ETF Securities of the Fund, including the posting of a liquid two-way market for the trading of the Fund's ETF Securities on the NEO Exchange or another Marketplace.

ETF Securities means securities of an exchange-traded class or series of a Fund that are listed or will be listed on the NEO Exchange or another Marketplace and that will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.

Form 81-101F1 means Form 81-101F1 Contents of Simplified Prospectus.

Marketplace means a "marketplace" as defined in National Instrument 21-101 Marketplace Operation that is located in Canada.

Mutual Fund Securities means securities of a non-exchange-traded class or series of a Fund that are or will be distributed pursuant to a simplified prospectus prepared in accordance with NI 81-101 and Form 81-101F1.

NEO Exchange means the Aequitas NEO Stock Exchange.

NI 81-101 means National Instrument 81-101 Mutual Fund Prospectus Disclosure.

Other Dealer means a registered dealer that is not an Authorized Dealer, Designated Broker or Affiliate Dealer.

Prescribed Number of ETF Securities means, in relation to a Fund, the number of ETF Securities of the Fund determined by the Filer from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.

Prospectus Delivery Requirement means the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement of the Legislation applies, send or deliver to the purchaser or its agent, unless the dealer has previously done so, the latest prospectus and any amendment either before entering into an agreement of purchase and sale resulting from the order or subscription, or not later than midnight on the second business day after entering into that agreement.

Securityholders means beneficial or registered holders of ETF Securities or Mutual Fund Securities of a Fund, as applicable.

Representations

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

The Filer

1. The Filer is a limited partnership under the laws of the Province of Ontario.

2. The head office of the Filer is located at Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2700, P. O. Box 27, Toronto, Ontario, M5J 2J1.

3. The Filer is the investment fund manager of the Funds. The Filer is registered under the securities legislation: (i) in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador as an adviser in the category of portfolio manager; (ii) in Ontario, Newfoundland and Labrador and Quebec as an investment fund manager; and (iii) in British Columbia, Alberta, Quebec, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador as a dealer in the category of exempt market dealer. The Filer is also registered in Ontario as a commodity trading manager.

4. The Filer is, or will be, the investment fund manager of each Fund.

5. The Filer is not in default of securities legislation in any of the Jurisdictions.

The Funds

6. Each Fund is, or will be, a mutual fund structured as a trust or a corporation or a class thereof that is governed by the laws of a Jurisdiction. Each Fund is, or will be, a reporting issuer in the Jurisdictions in which its securities are distributed. Each Existing Fund offers Mutual Fund Securities and each Fund will offer ETF Securities.

7. Subject to any exemptions therefrom that have been, or may be, granted by the applicable securities regulatory authorities, each Fund is, or will be, subject to NI 81-102 and Securityholders will have the right to vote at a meeting of Securityholders in respect of matters prescribed by NI 81-102.

8. The Existing Mutual Funds, and one of the Existing Alternative Mutual Funds, Ninepoint Return Advantaged U.S. Equity Index Class, currently offer Series A, Series F, Series I and Series D Mutual Fund Securities. Certain Existing Mutual Funds also offer Series T, Series FT, Series P, Series PT, Series PF, Series PFT, Series Q, Series QT, Series QF and Series QFT Mutual Fund Securities, as applicable. These Mutual Fund Securities are currently distributed under a simplified prospectus and annual information form, each dated April 21, 2020, as amended on May 27, 2020 and as amended and restated on August 7, 2020.

9. The Existing Alternative Mutual Funds, other than Ninepoint Return Advantaged U.S. Equity Index Class, currently offer Series A, Series F, Series QF, Series I and Series D Mutual Fund Securities. One of the Existing Alternative Mutual Funds, Ninepoint FX Strategy Fund, also currently offers Series A1 and Series F1 Mutual Fund Securities. These Mutual Fund Securities are currently distributed under a simplified prospectus and annual information form, each dated November 8, 2019, as amended on April 9, 2020 and May 1, 2020.

10. On or about October 28, 2020, an amended and restated prospectus in respect of the Mutual Fund Securities and the ETF Securities of certain Existing Mutual Funds, as well as fund facts documents for each series of Mutual Fund Securities and ETF facts documents for each series of ETF securities of certain Existing Mutual Funds, will be filed with the securities regulatory authorities in each of the Jurisdictions.

11. The Filer will apply to list any ETF Securities of a Fund on the NEO Exchange or another Marketplace and will not file a final prospectus or amendment to a prospectus for a Fund in respect of the ETF Securities until the NEO Exchange or other applicable Marketplace has conditionally approved the listing of such ETF Securities.

12. Mutual Fund Securities may be subscribed for or purchased directly from a Fund through mutual fund dealers, investment dealers and their representatives that are registered under applicable securities legislation in the jurisdiction of Canada in which they are offered for sale.

13. ETF Securities will be distributed on a continuous basis in one or more of the Jurisdictions under a simplified prospectus. ETF Securities may generally only be subscribed for or purchased directly from the Funds (Creation Units) by Authorized Dealers or Designated Brokers. Generally, subscriptions or purchases may only be placed for a Prescribed Number of ETF Securities (or a multiple thereof) on any day when there is a trading session on the NEO Exchange or other Marketplace. Authorized Dealers or Designated Brokers subscribe for Creation Units for the purpose of facilitating investor purchases of ETF Securities on the NEO Exchange or another Marketplace.

14. In addition to subscribing for and re-selling their Creation Units, Authorized Dealers, Designated Brokers and Affiliate Dealers will also generally be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market. Other Dealers may also be engaged in purchasing and selling ETF Securities of the same class or series as the Creation Units in the secondary market despite not being an Authorized Dealer, Designated Broker or Affiliate Dealer.

15. Each Designated Broker or Authorized Dealer that subscribes for Creation Units must deliver, in respect of each Prescribed Number of ETF Securities to be issued, a Basket of Securities and/or cash with a value equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order. In the discretion of the Filer, the Funds may also accept subscriptions for Creation Units in cash only, in securities other than Baskets of Securities and/or in a combination of cash and securities other than Baskets of Securities, in an amount equal to the net asset value of the ETF Securities subscribed for next determined following the receipt of the subscription order.

16. Upon notice given by the Filer from time to time and, in any event, not more than once quarterly, a Designated Broker may be contractually required to subscribe for Creation Units of a Fund for cash in an amount not to exceed a specified percentage of the net asset value of the Fund or such other amount established by the Filer.

17. The Designated Brokers and Authorized Dealers will not receive any fees or commissions in connection with a subscription for Creation Units. On the issuance of Creation Units, the Filer or a Fund may, in the Filer's discretion, charge a fee to a Designated Broker or an Authorized Dealer to offset the expenses incurred in issuing the Creation Units.

18. Each Fund will appoint a Designated Broker to perform certain other functions, which include standing in the market with a bid and ask price for its ETF Securities for the purpose of maintaining liquidity for the ETF Securities.

19. Except for Authorized Dealer and Designated Broker subscriptions for Creation Units, as described above, and other distributions that are exempt from the Prospectus Delivery Requirement under the Legislation, ETF Securities will not be available for purchase directly from a Fund. Investors are generally expected to purchase and sell ETF Securities, directly or indirectly, through dealers executing trades through the facilities of the NEO Exchange or another Marketplace. ETF Securities may also be issued directly to Securityholders upon a reinvestment of distributions of income or capital gains.

20. Securityholders that are not Designated Brokers or Authorized Dealers that wish to dispose of their ETF Securities may generally do so by selling their ETF Securities on the NEO Exchange or other Marketplace, through a registered dealer, subject only to customary brokerage commissions. A Securityholder that holds a Prescribed Number of ETF Securities or multiple thereof may exchange such ETF Securities for Baskets of Securities and/or cash at the discretion of the Filer. Securityholders may also redeem ETF Securities for cash at a redemption price equal to 95% of the closing price of the ETF Securities on the NEO Exchange or other Marketplace on the date of redemption, subject to a maximum redemption price of the applicable net asset value per ETF Security.

Borrowing Restriction

21. Subparagraph 2.6(1)(a)(i) of NI 81-102 prevents a mutual fund from borrowing cash or providing a security interest over its portfolio assets unless the transaction is a temporary measure to accommodate redemption requests or to settle portfolio transactions and does not exceed five percent of the net assets of the mutual fund. As a result, a Mutual Fund is not permitted under subparagraph 2.6(1)(a)(i) to borrow from the Custodian to fund distributions under its Distribution Policy (as defined below).

22. Each Mutual Fund will make distributions on a monthly or annual basis or at such frequency as the Filer may, in its discretion, determine appropriate, may make additional distributions and, in each taxation year, will distribute sufficient net income and net realized capital gains so that it will not be liable to pay income tax under Part I of the Income Tax Act (Canada) (the Tax Act), and for each Mutual Fund structured as a corporation or a class thereof, under Part IV of the Tax Act on taxable dividends from taxable Canadian corporations (collectively, the Distribution Policy).

23. Amounts included in the calculation of net income and net realized capital gains of a Mutual Fund for a taxation year that must be distributed in accordance with its Distribution Policy sometimes include amounts that are owing to but have not actually been received by the Mutual Fund from the issuers of securities held in the Mutual Fund's portfolio (Issuers).

24. While it is possible for a Mutual Fund to maintain a portion of its assets in cash or to dispose of securities in order to obtain any cash necessary to make a distribution in accordance with its Distribution Policy, maintaining such a cash position or making such a disposition (which would generally be followed, when the cash is actually received from the Issuers, by an acquisition of the same securities) will impact the Mutual Fund's performance. The needs to maintain assets in cash or dispose of and reacquire the same securities would preclude a portion of the net asset value of the Mutual Fund from being invested in accordance with its investment objective.

25. The Filer is of the view that it is in the interests of a Mutual Fund to have the ability to borrow cash from its Custodian and, if required by the Custodian, to provide a security interest over its portfolio assets as a temporary measure to fund the portion of any distribution payable to Securityholders that represents, in the aggregate, amounts that are owing to, but have not yet been received by, the Mutual Fund from Issuers. While such borrowing will have a cost, the Filer expects that such costs will be less than the reduction to the Mutual Fund's performance if the Mutual Fund had to hold cash or to dispose of and reacquire securities in order to fund the distribution.

Sales and Redemptions Requirements

26. Parts 9, 10 and 14 of NI 81-102 do not contemplate both Mutual Fund Securities and ETF Securities being offered in a single fund structure. Accordingly, without the Exemption Sought in respect of the Sales and Redemptions Requirements, the Filer and the Funds would not be able to technically comply with those parts of NI 81-102.

27. The Exemption Sought will permit the Filer and the Funds to treat the ETF Securities and the Mutual Fund Securities as if such securities were separate funds for the purposes of their compliance with the Sales and Redemptions Requirements. The Exemption Sought will enable each of the ETF Securities and Mutual Fund Securities to comply with the Sales and Redemptions Requirements as appropriate for the type of security being offered.

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.

1. The decision of the principal regulator under the Legislation is that the Exemption Sought from the Borrowing Restriction is granted, provided that each Mutual Fund will be in compliance with the following conditions:

a. the borrowing by the Mutual Fund in respect of a distribution does not exceed the portion of the distribution that represents, in the aggregate, amounts that are payable to the Mutual Fund but have not been received by the Mutual Fund from the Issuers and, in any event, does not exceed five percent of the net assets of the Mutual Fund;

b. the borrowing is not for a period longer than 45 days;

c. any security interest in respect of the borrowing is consistent with industry practice for the type of borrowing and is only in respect of amounts owing as a result of the borrowing;

d. the Mutual Fund does not make any distribution to Securityholders where the distribution would impair the Mutual Fund's ability to repay any borrowing to fund distributions; and

e. the final prospectus or amendment thereto of the Mutual Fund discloses the potential borrowing, the purpose of the borrowing and the risks associated with the borrowing.

2. The decision of the principal regulator under the Legislation is that the Exemption Sought in respect of the Sales and Redemptions Requirements is granted, provided that each Fund will be in compliance with the following conditions:

a. with respect to its Mutual Fund Securities, the Fund complies with the provisions of Parts 9, 10 and 14 of NI 81-102 that apply to mutual funds that are not exchange-traded mutual funds; and

b. with respect to its ETF Securities, the Fund complies with the provisions of Parts 9 and 10 of NI 81-102 that apply to exchange-traded mutual funds.

"Darren McKall"
Manager, Investment Funds & Structured Products
Ontario Securities Commission

SCHEDULE A

Existing Mutual Funds

Ninepoint Diversified Bond Fund
Ninepoint Energy Fund
Ninepoint Global Infrastructure Fund
Ninepoint Global Real Estate Fund
Ninepoint Gold and Precious Minerals Fund
Ninepoint High Interest Savings Fund
Ninepoint Alternative Health Fund
Ninepoint International Small Cap Fund
Ninepoint Concentrated Canadian Equity Fund
Ninepoint Diversified Bond Class{*}
Ninepoint Resource Class{*}
Ninepoint Silver Equities Class{*}
Ninepoint Risk Advantaged U.S. Equity Index Class{*}
Ninepoint Focused Global Dividend Class{*}
Ninepoint Gold Bullion Fund
Ninepoint Silver Bullion Fund

Existing Alternative Mutual Funds

Ninepoint FX Strategy Fund
Ninepoint Alternative Credit Opportunities Fund
Ninepoint Return Advantaged U.S. Equity Index Class{*}

{*} A class of shares of Ninepoint Corporate Class Inc.