Exemptions granted from the mutual fund conflict of interest investment restrictions and reporting requirements of the Securities Act (Ontario) to permit a fund of fund structure.
Securities Act, R.S.O. 1990, c. S.5, as am., sections 111(2)(b), 111(2)(c), 111(3), 113, 117(1)(a), 117(1)(d), 117(2), 118(2)(a) and 121(2)(a)(ii).
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990,
CHAPTER S.5, AS AMENDED (the "Act")
IN THE MATTER OF
FRIEDBERG MERCANTILE GROUP LTD.
FRIEDBERG GLOBAL-MACRO HEDGE FUND
UPON the application of Friedberg Mercantile Group Ltd. ("FMGL") on its behalf and on behalf of Friedberg Global Macro-Hedge Fund (the "Existing Fund") and any other pooled fund that is a mutual fund in Ontario, but is not a reporting issuer as defined in the Act, established and managed by FMGL after the date hereof (the "Future Funds", together with the Existing Fund, the "Funds") for an order of the Ontario Securities Commission (the "Commission") pursuant to sections 113, 117(2), and 121(2) of the Act (collectively "Ontario Legislation") for relief from the restrictions and requirements described below (together the "Applicable Requirements") in respect of the Funds' investments in Friedberg Equity-Hedge Fund, Friedberg International Securities Fund, The Friedberg Diversified Fund, The Friedberg Currency Fund, and Friedberg Foreign Bond Fund (collectively, the "Existing Underlying Funds") and any other mutual fund or pooled fund that is a mutual fund in Ontario as defined in the Act, established and managed by FMGL after the date hereof (the "Future Underlying Funds" together with the Existing Underlying Funds, the "Underlying Funds"):
(a) the restriction prohibiting a mutual fund from knowingly making and holding an investment,
(i) 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; or
(ii) in an issuer in which,
1. any officer or director of the mutual fund, its management company or distribution company or an associate of any of them, or
2. any person or company who is a substantial security holder of the mutual fund, its management company or its distribution company has a significant interest, as set out in paragraphs 111(2)(b) and 111(2)(c) and subsection 111(3) of the Act;
(b) the requirement of a management company to file a report of every transaction of purchase or sale of securities between a mutual fund it manages and any related person or company and any transaction in which, by arrangement other than an arrangement relating to insider trading in portfolio securities, a mutual fund is a joint participant with one or more of its related persons or companies, in respect of each mutual fund to which it provides services or advice, within 30 days after the end of the month in which it occurs as set out in paragraphs 117(1)(a) and 117(1)(d) of the Act; and
(c) the restriction against a portfolio manager knowingly causing an investment portfolio managed by it to invest in the securities of any issuer in which a "responsible person" (as that term is defined in the Act) or an associate of a responsible person is an officer or director, unless the relationship is disclosed to the client, and if applicable, the written consent of the client to the investment is obtained before the purchase as set out in paragraph 118(2) of the Act;
AND UPON considering the application and the recommendation of staff of the Commission;
AND UPON FMGL having represented as follows:
1. FMGL is a corporation existing under the laws of Canada and having its head office in Toronto. FMGL is the manager, portfolio manager, principal distributor and custodian of the Existing Fund and the Existing Underlying Funds other than Foreign Bond Fund, for which Toronto Trust Management Inc. (an affiliate of FMGL) is the manager and trustee, and FMGL is the portfolio manager.
2. FMGL is registered under the Securities Act (Ontario) as an Investment Dealer and under the Commodity Futures Act (Ontario) as a Futures Commission Merchant.
3. Each of the Fund, Friedberg Equity-Hedge Fund and Friedberg International Securities Fund (the "Private Funds") is a pooled investment fund established as a limited partnership under the laws of Ontario. The Private Funds are not reporting issuers, but do qualify as mutual funds in Ontario as defined in the Act. Each investor in these funds has an undivided pro rata interest in the fund evidenced by units in the fund. The units of these funds have been offered for sale on an exempt basis to investors.
4. Each of Friedberg Foreign Bond Fund, The Friedberg Currency Fund and The Friedberg Diversified Fund (the "Public Funds") is a limited partnership under the laws of Ontario (with the exception of Friedberg Foreign Bond Fund which is a trust governed under the laws of Ontario). The Public Funds are mutual funds in Ontario and are reporting issuers in all the various provinces (other than Quebec) and in each of the territories. Units of Friedberg Foreign Bond Fund are currently offered for sale on a continuous basis by simplified prospectus and annual information form. Units of the remaining Public Funds are no longer offered by prospectus.
5. Should FMGL intend to establish other pooled investment funds in the future, such Future Funds will be open-ended trusts or limited partnerships.
6. FMGL invests a certain amount of the capital of each of the Funds in the Underlying Funds. The percentage invested by each Fund in the Underlying Funds may fluctuate on a periodic basis based on investment decisions made by FMGL in order to meet the investment objectives of each Fund.
7. The actual weightings of the investment of the Fund in the Underlying Funds are reviewed no less frequently than monthly and adjusted to ensure that the investment weightings continue to be appropriate for investment objectives. The investment of a Fund in the Underlying Funds will be actively managed by FMGL on an ongoing basis.
8. The investment objectives of the Underlying Funds will be described in the annual report and annual financial statements of the Funds.
9. Unitholders of the Funds receive the audited annual and unaudited semi-annual financial statements together with the report of the Funds' auditor. Unitholders will also receive appropriate summary disclosure in respect of the Funds' holding of securities of the Underlying Funds the financial statements of the Funds.
10. Unitholders of the Funds may receive the offering memorandum or prospectus, the annual report and annual and semi-annual financial statements of the Underlying Funds free of charge upon request to FMGL.
11. Where a matter relating to an Underlying Fund requires a vote of securityholders of the Underlying Fund, FMGL and its affiliates will not cause the securities of the Underlying Fund held by a Fund to be voted at such meeting.
12. There will be no duplication of management fees and performance fees as between the Funds or the Underlying Funds. The total effective management fee and performance fee charged to an investor in the Funds will be the stated management fee and performance fee in the limited partnership agreement or declaration of trust for each Fund.
13. There will be no sales or redemption charges levied on the purchase or redemption of securities of the Underlying Funds by the Funds, except for flow throughs of redemption charges for redemptions of units of the Underlying Funds necessitated by redemptions of units of the Funds, which charges will not exceed those otherwise chargeable by the Funds to their redeeming unitholders.
14. In the absence of this Order, the Applicable Requirements prohibit the Fund from knowingly making or holding an investment in an Underlying Fund in which it, alone or together with one or more mutual funds, is a substantial securityholder.
15. In the absence of this Order, the Applicable Requirements require FMGL to file a report on every purchase or sale of securities of the Underlying Funds by the Funds.
16. In the absence of this Order, the Applicable Requirements prohibit FMGL from causing the Funds to invest in the Underlying Funds unless the specific fact is disclosed to unitholders of the Funds and written consent of unitholders of the Funds is obtained before the purchase.
17. The investments by the Funds in securities of the Underlying Funds represent the business judgement of "responsible persons" (as defined in Section 118 of the Act) uninfluenced by considerations other than the best interests of the Funds.
AND UPON the undersigned being of the opinion that the tests contained in the Act have been met;
IT IS ORDERED pursuant to the Act that the Applicable Requirements shall not apply so as to prevent the Funds from making and holding investments in securities of the Underlying Funds or so as to require FMGL to file a report relating to each purchase or sale of such securities and disclose such purchase to unitholders of the Funds and obtain their written consent to the investment prior to the purchase;
PROVIDED THAT, the Order shall only apply if, at the time the Funds make or hold investments in the Underlying Funds, the following conditions are satisfied:
(a) the annual report and annual financial statements for each of the Funds discloses:
(i) the intent of the Funds to invest a portion of its assets in securities of the Underlying Funds;
(ii) the manager of the Underlying Funds;
(iii) the name of the Underlying Funds; and
(iv) the investment objectives, investments strategies, risks and restrictions of the Underlying Funds;
(b) the arrangements between or in respect of the Funds and the Underlying Funds are such as to avoid the duplication of management fees and performance fees;
(c) FMGL will not vote the securities of the Underlying Funds held by a Fund at any meeting of holders of such securities; and
(d) in addition to receiving the annual and the semi-annual financial statements of the Fund, securityholders of the Fund have received appropriate summary disclosure in respect of the Funds' holdings of securities of the Underlying Funds in the financial statements of the Funds.
June 18, 2004.
"Susan Wolburgh Jenah"