Maxam Capital Management Ltd. et al.

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

National Instrument 81-102 Investment Funds (NI 81-102), s. 19.1 -- Exemption from requirements of past performance data in sales communications in Part 15 of NI 81-102 -- Before becoming a reporting issuer, the fund did not deviate from NI 81-102 investment restrictions and its past performance is reflective of how the fund would have performed as a reporting fund; the fund's prior cost expenses are not materially different from a reporting fund; the fund discloses in the sales communications, fund facts document and MRFP that the past performance data is from a period when the fund was not a reporting issuer and that its expenses would have been higher had it been a reporting issuer; the manager posts on its website and makes available to investors the financial statements of the fund for all periods for which it is using the past performance.

National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), s. 6.1 -- Exemption from the fund facts form requirement in order to include past performance data -- Before becoming a reporting issuer, the fund did not deviate from NI 81-102 investment restrictions and its past performance is reflective of how the fund would have performed as a reporting fund; the fund's prior cost expenses are not materially different from a reporting fund; the fund discloses in the sales communications, fund facts document and MRFP that the past performance data is from a period when the fund was not a reporting issuer and that its expenses would have been higher had it been a reporting issuer; the manager posts on its website and makes available to investors the financial statements of the fund for all periods for which it is using the past performance.

National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), s. 17.1 -- Exemption from the MRFP form requirement in order to include past performance data -- Before becoming a reporting issuer, the fund did not materially deviate from NI 81-102 investment restrictions and its past performance is reflective of how the fund would have performed as a reporting fund; the fund's prior cost expenses are not materially different from a reporting fund; the fund discloses in the sales communications, fund facts document and MRFP that the past performance data is from a period when the fund was not a reporting issuer and that its expenses would have been higher had it been a reporting issuer; the manager posts on its website and makes available to investors the financial statements of the fund for all periods for which it is using the past performance.

Exemption from Purchase and Redemption Requirements -- An investment fund wants relief from the purchase and redemption restrictions in NI 81-102 to permit consolidated processing of purchase and redemption orders -- The fund's purchase and redemption orders are consolidated into monthly orders; the fund's simplified prospectus and fund facts will describe the purchase/redemption structure.

An alternative mutual fund wants relief from the short selling restriction in NI 81-102 that prohibits an alternative mutual fund or a non-redeemable investment fund from selling a security short if the aggregate market value of all securities sold short by the fund exceeds 50% of the fund's net asset value (NAV) -- the fund will be restricted to short sell securities up to an aggregate market value of 100% of the fund's NAV; the fund will continue to comply with the requirements in NI 81-102 that permit the fund to borrow cash, short sell and enter into specified derivatives transactions (which can be set up to mimic leverage and short transactions) up to a limit of 300% of the fund's NAV; if the relief results in a material change or change to the fund's risk rating, the fund will comply with applicable requirements under securities legislation; the fund will disclose the material terms of the relief in its investor facing materials.

An alternative mutual fund wants relief from the borrowing restriction in NI 81-102 that prohibits an alternative mutual fund or a non-redeemable investment fund from borrowing cash if the aggregate value of all outstanding borrowing by the fund exceeds 50% of the fund's net asset value (NAV) -- the fund will be restricted to borrow cash to an aggregate value of 100% of the fund's NAV; the fund will continue to comply with the requirements in NI 81-102 that permit the fund to borrow cash, short sell and enter into specified derivatives transactions (which can be set up to mimic leverage and short transactions) up to a limit of 300% of the fund's NAV; if the relief results in a material change or change to the fund's risk rating, the fund will comply with applicable requirements under securities legislation; the fund will disclose the material terms of the relief in its investor facing materials.

An alternative mutual fund wants relief from the restriction in NI 81-102 that prohibits an investment fund from borrowing cash or selling securities short if the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by the fund exceeds 50% of the fund's net asset value (NAV ) -- the fund will be restricted to borrow cash and/or short sell to an aggregate value of 100% of the fund's NAV; the fund will continue to comply with the requirements in NI 81-102 that permit the fund to borrow cash, short sell and enter into specified derivatives transactions (which can be set up to mimic leverage and short transactions) up to a limit of 300% of the fund's NAV; if the relief results in a material change or change to the fund's risk rating, the fund will comply with applicable requirements under securities legislation; the fund will disclose the material terms of the relief in its investor facing materials.

Exemption from Custodial Requirements for Short Sale Collateral -- An alternative mutual fund wants relief from the custodial requirement in subsection 6.1(1) of NI 81-102 to permit the fund to deposit portfolio assets exceeding 25% of the fund's NAV with a single borrowing agent that is not the fund's custodian or sub-custodian -- prime brokers often retain short sale proceeds as collateral; the relief is needed to permit funds to deposit portfolio assets with a single prime broker; alternative mutual funds typically use strategies that more heavily use short selling.

Applicable Legislative Provisions

National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.1 and 6.1.

National Instrument 81-102 Investment Funds, ss. 2.6, 2.6.1, 2.6.2 and 19.1.

National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 4.4 and 17.1.

August 2, 2022

IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF MAXAM CAPITAL MANAGEMENT LTD. (the Filer) AND IN THE MATTER OF MAXAM DIVERSIFIED STRATEGIES FUND (the MDS Fund) AND IN THE MATTER OF MAXAM ARBITRAGE FUND (the MA Fund, and collectively with the MDS Fund, the Funds)

DECISION

Background

¶ 1 The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief:

In respect of the MDS Fund, exempting the MDS Fund from:

(a) sections 15.3(2), 15.6(1)(a)(i) and 15.6(1)(d) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the MDS Fund to include performance data in sales communications although:

i. the performance data relates to a period prior to the MDS Fund offering its securities under a simplified prospectus, and

ii. the MDS Fund has not distributed its securities under a prospectus for 12 consecutive months;

(b) section 2.1 of National Instrument 81-101 Mutual Funds Prospectus Disclosure (NI 81-101) for the purposes of the relief granted in this decision from Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3);

(c) Items 5(2), 5(3) and 5(4), and Instructions (1) and (5) of Part I of Form 81-101F3 in respect of the requirement to comply with sections 15.3(2), 15.6(1)(a)(i) and 15.6(1)(d) of NI 81-102 to permit the MDS Fund to include in its fund facts past performance data of the MDS Fund although:

i. the performance data relates to a period prior to the MDS Fund offering its securities under a simplified prospectus, and

ii. the MDS Fund has not distributed its securities under a simplified prospectus for 12 consecutive months;

(d) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of the relief granted in this decision from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1);

(e) Items 3.1(7) and 4.1(1) in respect of the requirement to comply with section 15.3(2) of NI 81-102, 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B of Form 81-106F1 and Items 3(1) and 4 of Part C of Form 81-106F1 to permit the MDS Fund to include in its annual and interim management reports of fund performance (individually an MRFP and collectively, the MRFPs) past performance data although such performance data relates to a period prior to the MDS Fund offering its securities under a simplified prospectus (collectively, the Past Performance Relief);

(f) section 9.3(1) of NI 81-102, to permit the MDS Fund to process purchase orders for its units, as described in its simplified prospectus and fund facts, on a monthly basis at their class net asset value per unit calculated as at the last Valuation Date (as defined below) of the calendar month in which the purchase order for such units is received or deemed to be received (the Purchase Relief);

(g) section 10.3(1) of NI 81-102, to permit the MDS Fund to process redemption orders for its units, as described in its simplified prospectus and fund facts, which were received by MDS Fund with at least 15 business days prior written notice, on a monthly basis, redeeming such units at their class net asset value per unit calculated on the last Valuation Date (as defined below) of each calendar month in which the redemption order for such units is received (the Redemption Relief);

In respect of the Funds, exempting the Funds from:

(h) the following restrictions of NI 81-102 to permit the Funds to sell securities short and/or borrow cash up to a combined aggregate total of 100% of the net asset value (NAV) of the Fund:

i. subparagraph 2.6.1(1)(c)(v), which restricts a Fund from selling a security short if, at the time, the aggregate market value of all securities sold short by a Fund exceeds 50% of the Fund's NAV (together with (h)(iii) below, the Short Selling Limit);

ii. subparagraph 2.6(2)(c), which restricts a Fund from borrowing cash if the value of cash borrowed, when aggregated with the value of all outstanding borrowing by a Fund, exceeds 50% of the Fund's NAV (together with (h)(iii) below, the Cash Borrowing Limit);

iii. section 2.6.2, which restricts a Fund from borrowing cash or selling securities short if, immediately after entering into a cash borrowing or short selling transaction, the aggregate value of cash borrowed combined with the aggregate market value of all securities sold short by the Fund (the Combined Aggregate Value) would exceed 50% of the Fund's NAV and which requires the Fund, if the Combined Aggregate Value exceeds 50% of the Fund's NAV, as quickly as commercially reasonable, to take all necessary steps to reduce the Combined Aggregate Value to 50% or less of the Fund's NAV; and

(h)(i) and (ii) together, the Short Selling Relief and (h)(ii) and (iii) together, the Cash Borrowing Relief)

(i) the requirement in subsection 6.1(1) of NI 81-102 that, except as provided, all portfolio assets of a Fund be held under the custodianship of one qualified custodian, to permit the Fund to deposit portfolio assets with a borrowing agent that is not the Fund's custodian or sub-custodian in connection with a short sale of securities, if the aggregate market value of the portfolio assets held by the borrowing agent after such deposit, excluding the aggregate market value of the proceeds from outstanding short sales of securities held by the borrowing agent, does not exceed 25% of the NAV of the Fund at the time of deposit;

(the Short Sale Collateral Relief, and collectively with the Past Performance Relief, the Redemption Relief, the Short Selling Relief, and the Cash Borrowing Relief, the Exemption Sought).

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

(a) the British Columbia Securities Commission is the principal regulator for the Application;

(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, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, Northwest Territories, Yukon and Nunavut; 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

¶ 2 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

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

1. the MA Fund is an open-end mutual fund established under the laws of British Columbia as a trust on August 11, 2020 (the MAF Inception Date) and is governed by a master mutual fund trust agreement dated August 11, 2020;

2. the MDS Fund is an open-end mutual fund established under the laws of British Columbia as a trust on September 26, 2008 (the MDSF Inception Date) and is governed by a master mutual fund trust agreement dated September 26, 2008;

3. each Fund is, or will be, an alternative mutual fund to which NI 81-102 applies;

4. the Filer is a corporation organized under the laws of British Columbia with a head office in Vancouver, British Columbia;

5. the Filer is registered as an investment fund manager in British Columbia and Ontario, as a portfolio manager in Alberta, British Columbia and Ontario, and as an exempt market dealer in Alberta, British Columbia, Manitoba, Ontario and Saskatchewan;

6. the Filer is the trustee, manager, portfolio advisor and promoter of the Funds;

7. the Filer and the Funds are not in default of securities legislation in any Canadian jurisdiction;

The Past Performance Relief

8. since the MDSF Inception Date, units of the MDS Fund have been offered to investors on a private placement basis in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106). During such period, the majority of units of the MDS Fund were distributed to investors who are "accredited investors" under NI 45-106 or to fully managed accounts;

9. the Fund intends to offer units of the MDS Fund to the public in the Jurisdictions pursuant to a simplified prospectus and fund facts documents (the IPO). The Fund has filed a preliminary simplified prospectus and fund facts for the MDS Fund with the securities regulator in each of the Jurisdictions and intends to file a final simplified prospectus and fund facts on or about August 18, 2022. Upon issuance of a receipt for the final simplified prospectus, the MDS Fund will become a reporting issuer in each of the Jurisdictions, and will become subject to the requirements of NI 81-102 and NI 81-106;

10. since the MDSF Inception Date, the MDS Fund has prepared audited annual and unaudited semi-annual financial statements in accordance with NI 81-106;

11. since the MDSF Inception Date, the MDS Fund has complied with the investment restrictions and practices contained in NI 81-102;

12. the MDS Fund will be managed substantially similarly after it becomes a reporting issuer as it was prior to becoming a reporting issuer. As a result of the MDS Fund becoming a reporting issuer:

(a) the MDS Fund's investment objectives will not change;

(b) the management fee charged to the MDS Fund will not change;

(c) the day-to-day administration of the MDS Fund will not change, other than to comply with the additional regulatory requirements associated with being a reporting issuer (none of which will impact the portfolio management of the MDS Fund); and

(d) the management expense ratio of the MDS Fund is not expected to increase by more than 0.10%, which the Filer considers to be an immaterial amount;

13. the Filer proposes to present the performance data of the MDS Fund for the time period since the MDSF Inception Date in sales communications pertaining to the MDS Fund;

14. without the Exemption Sought, sales communications pertaining to the MDS Fund cannot include performance data of the MDS Fund that relate to a period prior to it becoming a reporting issuer;

15. without the Exemption Sought, sales communications pertaining to the MDS Fund would not be permitted to include performance data until the MDS Fund has distributed securities under a simplified prospectus for 12 consecutive months;

16. as a reporting issuer, the MDS Fund will be required under NI 81-101 to prepare and file fund facts;

17. the Filer proposes to include in the fund facts for the MDS Fund past performance data in the disclosure required by Items 5(2), 5(3) and 5(4) under the sub-headings "Year-by-year returns", "Best and worst 3-month returns" and "Average return", respectively, related to periods prior to the MDS Fund becoming a reporting issuer. Without the Exemption Sought, the fund facts for the MDS Fund cannot include performance data of the MDS Fund that relate to a period prior to it becoming a reporting issuer;

18. as a reporting issuer, the MDS Fund will be required under NI 81-106 to prepare and file MRFPs on an annual and interim basis;

19. without the Exemption Sought, the MRFPs of the MDS Fund cannot include financial highlights and performance data of the Fund that relate to a period prior to it becoming a reporting issuer;

20. the performance data and other financial data of the MDS Fund for the time period before it became a reporting issuer is significant and meaningful information for existing and prospective investors in making an informed decision whether to purchase or sell units of the MDS Fund;

The Purchase Relief and Redemption Relief

21. the MDS Fund's NAV will be calculated at the close of regular trading, normally 4:00 p.m. (Eastern time) on a day the Toronto Stock Exchange is open (a Valuation Date);

22. the Filer will calculate the NAV for each Fund on a daily basis in order to meet its obligations under NI 81-106 regarding the use of derivatives, including the obligation to daily mark-to-market the value of its derivatives;

23. subsections 9.3(1) and 10.3(1) of NI 81-102 require that the purchase price and redemption price of a security of a mutual fund to which a purchase order and redemption order pertains, respectively, be the net asset value per security next determined after receipt by each Fund of the purchase order and redemption order, respectively;

24. as will be described in the MDS Fund's simplified prospectus and fund facts, the MDS Fund will:

(a) process purchase orders monthly. Subscriptions received by the Filer by 1:00 p.m. (Pacific Standard time) on the last business day of each month will be processed on that business day at the class net asset value per unit calculated on that day; and

(b) process redemption orders for its units received at least 15 business days prior to the Valuation Date, on a monthly basis, redeeming such units at their class net asset value per unit calculated on the last Valuation Date of each calendar month in which the redemption order for such units is received;

25. the MDS Fund will pay the redemption proceeds for units that are the subject of a redemption order no later than 15 business days after the Valuation Date on which the redemption price was calculated;

26. the Filer has structured its mutual fund operations so that it can consolidate all purchase orders into one efficient monthly processing transaction and all redemption orders into one efficient monthly processing transaction. The Filer has determined that effecting such purchases and redemptions on a monthly basis strikes the best balance between the needs of a unitholder to invest or access its assets in a timely and orderly manner, and the need to minimize the impact of such transactions on other unitholders in the MDS Fund;

27. the Filer believes that monthly redemptions will mitigate the costs of portfolio turnovers due to lower transaction costs in the form of brokerage commissions and the bid-ask spread. Further, it has determined that monthly redemptions will protect the MDS Fund from having to reduce positions at less than ideal times during potentially challenging market conditions. This will ensure that all unitholders of the MDS Fund will be treated fairly in instances where the MDS Fund is not able to unwind its portfolio holdings in an orderly manner to honour the redemption requests at the time;

The Short Selling Relief and Cash Borrowing Relief

28. the investment objectives of each Fund will differ but, in each case, key investment strategies which may be utilized by a Fund will include (a) the use of shorting strategies requiring the use of short selling in excess of the Short Selling Limit in order to achieve the investment objective of the Fund, and/or (b) the use of cash borrowing to provide additional investment exposure in connection with the investment strategies of the Fund in excess of the Cash Borrowing Limit;

29. the key investment strategies of the MA Fund include market-neutral strategies requiring the use of short selling in excess of the Short Selling Limit. The MDS Fund also uses market-neutral strategies to help offset or balance out portions of the fund's portfolio that have long notional exposure, and the fund's use of market-neutral strategies may require the use of short selling in excess of the Short Selling Limit. Market-neutral strategies are well-recognized for limiting market risk, balancing long and short positions within an investment portfolio with the objective of providing positive returns regardless of whether the broader market rises, falls or is flat. Market-neutral strategies are designed to have less volatility than the broader market when measured over medium to long-term periods. Market-neutral strategies also provide diversification to investors as returns are intended to be uncorrelated to the performance of the broader market -- such strategies are designed to effectively remove any "beta" component from their returns and investment exposures;

30. as part of an investment strategy for each Fund, short positions can serve as both a hedge against exposure to a long position or a group of long positions and also as a source of returns with an offsetting long position or positions. The Funds will generally seek to generate an attractive risk/return profile independent of the direction of the broad equity markets. As such, at the portfolio level, these strategies will seek to hedge a Fund's exposure to the direction of broad equity markets, and to generate positive performance from the difference, specifically, the spread between the performance of the portfolio's long and short positions;

31. the ability to engage in additional short selling and cash borrowing in connection with the investment strategies of a Fund may provide material cost savings to the Fund compared to obtaining the same level of investment exposure through the use of specified derivatives while, at the same time, not increasing the overall level of risk to the Fund;

32. any short position entered into by each Fund will be consistent with the investment objectives and strategies of each Fund;

33. the costs to the Funds of engaging in physical short sales and cash borrowing are typically less when compared to the equivalent derivative transactions due to a number of factors that include:

(a) prime brokers typically have greater flexibility to offer more favourable financing terms a Fund in relation to the aggregate amount of the Fund's assets held in the prime brokerage margin account. Derivative instruments, such as futures contracts and over the counter (OTC) derivatives, are not held in a prime brokerage account and therefore reduce the ability of a Fund to obtain the most beneficial pricing terms available;

(b) margin requirements for derivative instruments are primarily based on the underlying investment exposure and, as a result, can be high; and

(c) certain derivative instruments (such as futures contracts) require cash or near cash securities (such as government treasuries) to be deposited with the counterparty as collateral. This would require a Fund to use these portfolio assets to satisfy collateral requirements rather than utilizing them in connection with the Fund's investment strategy;

34. the Funds may use cash borrowing as a more flexible and cost-efficient means of providing additional leverage for investment strategies such as merger arbitrage strategies where the use of derivative instruments to provide the same level of exposure may not be not practical. In connection with such strategies, the Filer is typically required to respond in a timely manner to public disclosure relating to a transaction and market movements in the share price of the target and/or acquiror company. The use of cash borrowing in such circumstances provides an easily accessible tool which enables the Filer to implement the investment decision more quickly compared to the use of derivative instruments which provide the same level of exposure on a synthetic basis;

35. cash borrowing is more efficient to utilize on a day to day basis compared to derivative instruments which generally require a higher degree of negotiation and ongoing administration on the part of the Filer. The Cash Borrowing Relief would provide the Filer with access to a more functional source of additional leverage to utilize on behalf of the Funds at a lower cost which, in turn, would benefit investors;

36. the investment strategies of each Fund permit, or will permit, it to:

(a) sell securities short provided that, at the time the Fund sells a security short (i) the aggregate market value of securities of any one issuer (other than "government securities" as defined in NI 81-102) sold short by the Fund does not exceed 10% of the NAV of the Fund and (ii) the aggregate market value of all securities sold short by the Fund does not exceed 100% of its NAV;

(b) borrow cash provided that, at the time, the value of cash borrowed when aggregated with the value of all outstanding borrowing by the Fund does not exceed 100% of the Fund's NAV;

(c) borrow cash or sell securities short, provided that the aggregate value of cash borrowed combined with the aggregate market value of the securities sold short by the Fund does not exceed 100% of the Fund's NAV (the Total Borrowing and Short Selling Limit). If the Total Borrowing and Short Selling Limit is exceeded, the Fund shall, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short to be within the Total Borrowing and Short Selling Limit; and

(d) borrow cash, sell securities short or enter into specified derivatives transactions, provided that immediately after entering into a cash borrowing, short selling or specified derivative transaction, the aggregate value of cash borrowed combined with the aggregate market value of securities sold short and aggregate notional amount of the Fund's specified derivatives positions (other than positions held for hedging purposes, as defined in NI 81-102) would not exceed 300% of the NAV of the Fund as set out in section 2.9.1 of NI 81-102 (the Leverage Limit). If the Leverage Limit is exceeded, the Fund shall, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate value of cash borrowed combined with the aggregate market value of securities sold short and the aggregate notional amount of the Fund's specified derivatives positions (other than positions held for hedging purposes) to be within the Leverage Limit;

37. an alternative mutual fund that is subject to NI 81-102 is permitted to take leveraged long and short positions using specified derivatives up to the Leverage Limit. As such, the Short Selling Relief and Cash Borrowing Relief would not be required if the Fund utilized solely specified derivatives (such as over-the-counter total return swaps) to obtain short exposure to the underlying securities or to provide additional investment exposure in connection with the Fund's investment strategies. NI 81-102 contemplates that alternative mutual funds may utilize shorting strategies using a combination of short sale transactions (subject to the Short Selling Limit) and specified derivative positions and obtain additional investment exposure using a combination of cash borrowing (subject to the Cash Borrowing Limit) and specified derivative positions subject, in all cases, to the Leverage Limit. Alternative mutual funds that were previously known as commodity pools provide 100% or 200% inverse exposure through the use of specified derivatives, which is consistent with the Leverage Limit and does not trigger the application of the Short Selling Limit or Cash Borrowing Limit for which the Filer is requesting exemptive relief. Accordingly, the Short Selling Relief and Cash Borrowing Relief would simply allow the Funds to do directly what they could otherwise do indirectly through the use of specified derivatives;

38. the Funds require the flexibility to enter into physical short positions and borrow cash when doing so is, in the opinion of the Filer, in the best interests of the applicable Fund and to not be obligated to utilize an equivalent short position or amount of leverage synthetically through the use of specified derivatives as a result of regulatory restrictions in NI 81-102 that the Filer believes do not provide any material additional benefit or protection to investors.

39. the Funds may use derivative instruments to synthetically achieve the exposure for which the Short Selling Relief and the Cash Borrowing Relief is requested. The Filer believes that the Short Selling Relief and the Cash Borrowing Relief would allow the Filer to more effectively manage each Fund's investment exposure by providing it with the ability to respond to market developments in a timely manner and enabling the Filer to reduce the related expenses incurred by the Funds. In addition, specified derivative options may not be readily available for certain securities, may be relatively illiquid or may require large capital commitments on the part of the Fund;

40. while there may be certain situations where using a synthetic short position may be preferable, physical short positions are typically less costly, because of the ability to execute trades with a larger number of counterparties, compared to a single counterparty for synthetic shorts. This can result in lower borrowing costs for the Fund and reduce its exposure to counterparty risk (e.g. counterparty default, counterparty insolvency and premature termination of derivatives) compared to a synthetic short position;

41. the Filer, as a registrant and a fiduciary, is in the best position to determine, depending on the surrounding circumstances, whether the Fund should enter into a physical short position and/or obtain additional investment exposure via cash borrowing versus achieving the same result through the use of specified derivatives. The Short Selling Relief and Cash Borrowing Relief would provide the Filer with the required flexibility to make timely trading decisions between physical and synthetic short sale positions and/or achieving additional investment exposure through cash borrowing or synthetic transactions. Accordingly, the Short Selling Relief and the Cash Borrowing Relief would permit the Filer to implement more effective portfolio management activities on behalf of a Fund and its investors. Investors would benefit by obtaining access to a more diversified set of investment opportunities than are currently available, while remaining within the overall investment limits set out in NI 81-102;

42. any physical short position or cash borrowing transaction entered into by a Fund will be consistent with the investment objectives and strategies of the applicable Fund.

43. the simplified prospectus and fund facts will comply with the applicable requirements of NI 81-101 for alternative mutual funds, including cover page text box disclosure in the fund facts to highlight how the Fund differs from other mutual funds and alternative mutual funds and emphasize that the short selling and cash borrowing strategies and increased ability to engage in short selling and cash borrowing permitted for the Fund are outside the scope of the restrictions in NI 81-102 applicable to both mutual funds and alternative mutual funds;

44. the investment strategies of each Fund will clearly disclose that the short selling and cash borrowing strategies and abilities of the Fund are outside the scope of NI 81-102, including that the aggregate market value of all securities sold short by the Fund and/or the aggregate amount of cash borrowed may exceed 50% of the NAV of the Fund. The Prospectus will also contain appropriate risk disclosure, alerting investors of any material risks associated with such investment strategies;

45. the Filer does not consider that granting the Short Selling and Cash Borrowing Relief would constitute either a fundamental or material change for the Existing Funds under NI 81-102 or National Instrument 81-106 Investment Fund Continuous Disclosure;

46. the Filer will determine the risk rating for each Fund using the Investment Risk Classification Methodology as set out in Appendix F of NI 81-102. The Filer does not anticipate that the current risk ratings of the Funds would change if the Short Selling and Cash Borrowing Relief were granted;

47. the Filer has comprehensive risk management policies and/or procedures that address the risks associated with short selling and cash borrowing in connection with the implementation of the investment strategy of each Fund.

48. each Fund will implement the following controls when conducting a short sale:

(a) the Fund will assume the obligation to return to the borrowing agent the securities borrowed to effect the short sale;

(b) the Fund will receive cash for the securities sold short within normal trading settlement periods for the market in which the short sale is effected;

(c) the Filer will monitor the short positions within the constraints of the Short Selling Relief and the Cash Borrowing Relief as least as frequently as daily;

(d) the security interest provided by the Fund over any of its assets that is required to enable the Fund to effect a short sale transaction is made in accordance with industry practice for that type of transaction and relates only to obligations arising under such short sale transactions;

(e) the Filer will maintain appropriate internal controls regarding short sales, including written policies and procedures for the conduct of short sales, risk management controls and proper books and records; and

(f) the Filer will keep proper books and records of short sales and all assets of a Fund deposited with borrowing agents as security;

49. the Filer believes that it is in the best interests of each of the Funds to be permitted to engage in physical short selling and to obtain additional investment exposure through the use of cash borrowing in excess of the current limits set out in NI 81-102;

The Short Sale Collateral Relief

50. as part of its investment strategies, each Fund is permitted to grant a security interest in favour of and to deposit pledged portfolio assets with its prime broker. If a Fund engages as its prime broker an entity that is not its custodian or sub-custodian, then a Fund may only deliver to its prime broker portfolio assets having a market value, in the aggregate, of not more than 25% of the NAV of the Fund at the time of deposit;

51. a prime broker may not wish to act as the borrowing agent for a Fund that has the ability to sell securities short that have an aggregate market value of up to 50% of the Fund's NAV (or more if the Short Selling Relief is granted) if the prime broker is only permitted to hold, as security for such transactions, portfolio assets having an aggregate market value that is not in excess of 25% of the NAV of the Fund;

52. prime brokers that are qualified to act as a custodian or sub-custodian under NI 81-102 are not widely appointed as custodians or sub-custodians under NI 81-102 as it can be both operationally challenging and costly to appoint them to act in such capacity;

53. given the typical collateral requirements that prime brokers impose on their customers who engage in the short sale of securities, if the Short Sale Collateral Limits apply, the Funds would need to retain multiple prime brokers in order to sell short securities to the extent permitted under Section 2.6.1 of NI 81-102 and, if granted, the Short Selling Relief described above. Managing and overseeing relationships with multiple prime brokers introduces unnecessary operational and administrative complexities and additional costs of operation for the Funds.

Decision

¶ 4 Each of the Decision Makers 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 Makers under the Legislation is that the Exemption Sought is granted provided that:

In respect of the Past Performance Relief:

(a) any sales communication and any fund facts that contain performance data of the MDS Fund relating to a period prior to when the MDS Fund was a reporting issuer discloses:

i. that the MDS Fund was not a reporting issuer during such period;

ii. that the expenses of the MDS Fund would have been higher during such period had the MDS Fund been subject to the additional regulatory requirements applicable to a reporting issuer;

iii. that prior to becoming a reporting issuer the MDS Fund was not subject to the investment restrictions and practices in NI 81-102;

iv. performance data of the MDS Fund for 10, 5, 3 and one year periods;

(b) the information contained under the heading "Fund Expenses Indirectly Borne by Investors" in Part B of the simplified prospectus of the MDS Fund based on the management expense ratio (MER) for the MDS Fund for the financial year ended December 31, 2022 be accompanied by disclosure that:

i. the information is based on the MER of the MDS Fund for the MDS Fund's last completed financial year when units of the MDS Fund were offered privately during part of such financial year;

ii. the MER of the MDS Fund may increase as a result of the MDS Fund offering units under the simplified prospectus;

(c) any MRFP that includes performance data of units of the MDS Fund relating to a period prior to when the MDS Fund was a reporting issuer discloses:

i. that the MDS Fund was not a reporting issuer during such period;

ii. that the expenses of the MDS Fund would have been higher during such period had the MDS Fund been subject to the additional regulatory requirements applicable to a reporting issuer;

iii. that prior to becoming a reporting issuer the MDS Fund was not subject to the investment restrictions and practices in NI 81-102;

iv. that the financial statements of the MDS Fund for such period are posted on the MDS Fund's website and are available to investors upon request;

v. performance data of units of the MDS Fund for 10, 5, 3 and one year periods; and

(d) the Filer posts the annual financial statements of the MDS Fund since the MDSF Inception Date on the MDS Fund's website and makes those financial statements available to investors upon request;

In respect of the Purchase Relief:

(e) the MDS Fund processes, and discloses in its simplified prospectus and in the "Quick Facts" section of its fund facts that it processes, purchase orders for its units on a monthly basis at their class net asset value per unit calculated as at the last Valuation Date of the calendar month in which the purchase order for such units is received (the Purchase Processing Frequency);

(f) the MDS Fund discloses in the "Who should invest in the Fund?" section of the Part B of its simplified prospectus and in the "Who is this Fund for?" section of its fund facts, the Purchase Processing Frequency and that the Fund is only suitable for investors who can accept the Purchase Processing Frequency;

In respect of the Redemption Relief:

(g) the MDS Fund processes, and discloses in its simplified prospectus and in the "Quick Facts" section of its fund facts that it processes, redemption orders for its units (the Redemption Processing Frequency) on at least 15 business days prior written notice, on a monthly basis, redeeming such units at their class net asset value per unit calculated on the last Valuation Date of each calendar month in which the redemption order for such units is received;

(h) the MDS Fund discloses in the "Who should invest in the Fund?" section of the Part B of its simplified prospectus and in the "Who is this Fund for?" section of its fund facts, the Redemption Processing Frequency and that the MDS Fund is only suitable for investors who can accept the Redemption Processing Frequency;

In respect of the Short Selling Relief and Cash Borrowing Relief:

(i) a Fund may sell a security short or borrow cash only if, immediately after the cash borrowing or short selling transaction:

i. the aggregate market value of all securities sold short by the Fund does not exceed 100% of the Fund's NAV;

ii. the aggregate value of all cash borrowing by the Fund does not exceed 100% of the Fund's NAV;

iii. the aggregate market value of securities sold short by the Fund combined with the aggregate value of cash borrowing by the Fund does not exceed 100% of the Fund's NAV; and

iv. the Fund's aggregate exposure to short selling, cash borrowing and specified derivatives does not exceed the Leverage Limit;

(j) in the case of a short sale, the short sale:

(a) otherwise complies with all of the short sale requirements applicable to alternative mutual funds under section 2.6.1 and 2.6.2 of NI 81-102; and

(b) is consistent with the Fund's investment objectives and strategies;

(k) in the case of a cash borrowing transaction, the transaction:

i. otherwise complies with all of the cash borrowing requirements applicable to alternative mutual funds under section 2.6 and 2.6.2 of NI 81-102; and

ii. is consistent with the Fund's investment objectives and strategies;

(l) the Prospectus under which securities of a Fund are offered:

i. discloses that the Fund can sell securities short or borrow cash up to, and subject to, the limits described in condition (i) above; and

ii. describes the material terms of the Short Selling Relief and the Cash Borrowing Relief;

In respect of the Short Sale Collateral Relief:

(m) each Fund otherwise complies with subsections 6.8.1(2) and (3) of NI 81-102.