MISSISSIPPI RIVER INVESTMENTS, INC.
Application to the Commission for an order, pursuant to section 80 of the Commodity Futures Act (the CFA), that neither the applicant, nor any of its directors, officers or employees acting on its behalf as an adviser, shall be subject to paragraph 22(1)(b) of the CFA in respect of advice provided for the benefit of a FMGL Managed Funds, the principal investment adviser of which is an Ontario registrant.
IN THE MATTER OF
THE COMMODITY FUTURES ACT
R.S.O. 1990, CHAPTER S.20, AS AMENDED
IN THE MATTER OF
MISSISSIPPI RIVER INVESTMENTS, INC.
IN THE MATTER OF
THE FRIEDBERG DIVERSIFIED FUND AND
THE FRIEDBERG FUTURES FUND
(Section 80 of the Commodity Futures Act)
UPON the application of Mississippi River Investments, Inc. (MRI) to the Ontario Securities Commission (the Commission) for a ruling under section 80 of the Commodity Futures Act (the CFA) that MRI, its advising employees, partners, directors and officers are not subject to paragraph 22(1)(b) of the CFA in respect of advisory activities for The Friedberg Diversified Fund and The Friedberg Futures Fund (together, the Specified Funds), for each of which Friedberg Mercantile Group Ltd. (FMGL) acts as portfolio manager (or the equivalent), and for other mutual funds for which FMGL acts as portfolio manager (or the equivalent) and in respect of which FMGL may wish to engage MRI to provide advisory services.;
AND UPON considering the application and the recommendation of staff of the Commission;
AND UPON MRI having represented to the Commission as follows:
1. MRI is a Tennessee corporation organized in 1978.
2. MRI is registered with the Commodity Futures Trading Commission (the CFTC) in the United States of America as a Commodity Trading Advisor and Commodity Pool Operator, and is a member of the National Futures Association (the NFA) in the United States of America.
3. FMGL is registered under the CFA as a dealer in the category of Commodity Futures Merchant and as an advisor in the category of Commodity Trading Manager. FMGL is also registered as a dealer under the Securities Act (Ontario) (the Securities Act) in the categories of Broker and Investment Dealer.
4. Each of the Specified Funds is a mutual fund (within the meaning ascribed to that term in Section 1 of the Securities Act) which is governed by National Instrument 81-102 -Mutual Funds and National Instrument 81-104 - Commodity Pools of the Canadian Securities Administrators. Each of the Specified Funds is constituted as a limited partnership organized under the laws of the Province of Ontario, and the units of each Specified Fund have previously been distributed on a continuous offering basis under a prospectus but are not currently being distributed.
5. FMGL is the portfolio manager (or the equivalent) for each of the Specified Funds. FMGL is also the portfolio manager (or the equivalent) for various other investment funds, which are currently constituted as limited partnerships or trusts, and may in the future act as portfolio manager (or the equivalent) for additional funds, however constituted (such current and future funds, together with the Specified Funds, being the FMGL Managed Funds).
6. Units of certain of the existing FMGL Managed Funds (including the Specified Funds, as described above) have been offered by prospectus (or simplified prospectus and annual information form), while units of other existing FMGL Managed Funds have only been offered on a prospectus exempt basis. Securities of future FMGL Managed Funds may be offered through a prospectus or on a prospectus exempt basis.
7. MRI is proposing to enter into one or more sub-advisory agreements with FMGL under which MRI would act as sub-advisor to FMGL in respect of each of the Specified Funds so as to advise in respect of purchases and sales of commodity futures contracts or related products by the Specified Funds, and FMGL and MRI may in the future wish to enter into arrangements under which MRI would provide such services to other FMGL Managed Funds (the Proposed Advisory Services).
8. In connection with the Proposed Advisory Services, MRI will enter into one or more written agreements with FMGL and the subject FMGL Managed Funds setting out the obligations and duties of MRI (each, a Sub-Advisory Agreement). The provisions of each Sub-Advisory Agreement will include the assumption of responsibility by FMGL in favour of the subject FMGL Managed Fund for the advice provided by MRI. Further, the Proposed Advisory Services will only be provided in circumstances where FMGL has contractually agreed with the subject FMGL Managed Fund to be responsible for any loss that arises out of the failure of MRI to
(a) exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the subject FMGL Managed Fund, and
(b) exercise the degree of care, diligence and skill that a responsibly prudent person would exercise in the circumstances
(the Responsibility Undertaking), which responsibility cannot be waived on behalf of the subject FMGL Managed Fund.
9. The Proposed Advisory Services will only be provided in connection with FMGL Managed Funds if
(a) where offering documentation is provided in respect of the offering of securities of the subject FMGL Managed Fund, such offering document discloses the Responsibility Undertaking, the difficulty in enforcing legal rights against MRI and that all or substantially all of MRI's assets are situated outside of Ontario (collectively, the Undertaking and Risk Disclosure), and
(b) if securities of the subject FMGL Managed Fund are not being distributed, or are distributed without the use of an offering document, the Undertaking and Risk Disclosure is otherwise provided in writing to each then existing securityholder of the subject FMGL Managed Fund before MRI commences providing its services in respect of such FMGL Managed Fund and (if applicable) such written disclosure is provided to any subscribers for securities of the subject FMGL Managed Fund prior to the issuance of the subscribed securities.
AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemption requested.
IT IS ORDERED pursuant to section 80 of the CFA that MRI, its employees, officers, partners and directors are not subject to the requirement of paragraph 22(1)(b) of the CFA to be registered under the CFA in respect of the Proposed Advisory Services, provided that:
(c) the obligations and duties of MRI are set out in one or more written agreements with FMGL;
(d) the Proposed Advisory Services will only be provided in circumstances where FMGL has entered into the Responsibility Undertaking, including that the responsibilities of FMGL thereunder will not be waived on behalf of the subject FMGL Managed Funds;
(e) the Portfolio Advisory Services will only be provided in respect of FMGL Managed Funds if the Undertaking and Risk Disclosure has been provided to each existing securityholder and to any subscribers for securities, either through an offering document or other written form;
(f) MRI remains registered as a Commodity Trading Adviser with the CFTC and a member of the NFA;
(g) MRI will only provide advice to FMGL so long as FMGL remains a registrant under the CFA and the Securities Act.; and
(h) this order shall terminate three years from the date of the order.
August 13, 2004.
"Robert L. Shirriff"
"H. Lorne Morphy"