Securities Law & Instruments

Headnote

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 the Horizon BetaPro Funds, the principal investment adviser of which is an Ontario registrant.

Statutes Cited

Commodity Futures Act, R.S.O. 1990. c. C.20., as am., ss. 22(1)(b), 80.

June 28, 2005

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER S.20, AS AMENDED (the CFA)

AND

IN THE MATTER OF

PROFUND ADVISORS LLC

 

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of ProFund Advisors LLC (ProFund) to the Ontario Securities Commission (the Commission) for an order, pursuant to section 80 of the CFA, that neither ProFund, nor any of its directors, officers or employees acting on its behalf as an adviser, shall be subject to the requirements of subsection 22(1)(b) of the CFA in respect of advice to be provided by ProFund in connection with the Horizon BetaPro Funds (the Funds);

AND UPON considering the Application and the recommendations of staff of the Commission;

AND UPON ProFund having represented to the Commission that:

1. ProFund is a limited liability company organized under the laws of the State of Maryland, U.S. Its head office is located in Bethesda, Maryland.

2. ProFund is registered as an investment adviser with the United States Securities and Exchange Commission (the SEC) and is exempted from registration with the U.S. Commodities Futures Trading Commission.

3. ProFund is proposing to enter a sub-advisory investment management agreement (the Agreement) with Felcom Management Corp. (Felcom) and BetaPro Management Inc. (BetaPro) whereby Felcom would act as the adviser of the Funds and BetaPro the manager of the Funds in respect of purchases and sales of commodity futures contracts and related products traded on commodity futures exchanges and cleared through clearing corporations outside of Canada, and ProFund would act as sub-adviser to Felcom (the Proposed Advisory Services).

4. Felcom is registered with the Commission as an adviser in the categories of investment counsel and portfolio manager and as a commodity trading manager under the CFA. Felcom has applied for registration as a limited market dealer under the Securities Act (Ontario) (the Act).

5. The Funds will be an open-ended mutual funds established under the laws of Ontario.

6. The Funds will be "mutual funds" as such term is defined in subsection 1(1) of the Act and a "commodity pool" as such term is defined in subsection 1.1 of Multilateral Instrument 81-104 - Commodity Pools.

7. In connection with the Proposed Advisory Services, the Agreement will set out the obligations and duties of ProFund. Under the Agreement, Felcom will assume responsibility for the Proposed Advisory Services.

8. Pursuant to the terms of the Agreement, ProFund will only provide the Proposed Advisory Services to Felcom where Felcom has contractually agreed with the Funds to be responsible for any loss arising out of the failure of ProFund to:

(a) exercise its powers and discharge its duties honestly, in good faith and in the best interests of Felcom and the Funds; or

(b) exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances;

(the "Standard of Care"), which responsibility cannot be waived.

9. ProFund will only provide the Proposed Advisory Services in connection with the Funds. The offering documents of the Funds will disclose that:

(a) Felcom has responsibility for the investment advice provided by ProFund; and

(b) to the extent applicable, there may be difficulty in enforcing any legal rights against ProFund because it is resident outside of Canada and all or a substantial portion of its assets are situated outside of Canada.

10. ProFund will only provide the Proposed Advisory Services in connection with the Funds so long as Felcom remains registered as an adviser under the Act and as a commodity trading manager under the CFA.

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 ProFund and its directors, officers and employees are not subject to the requirements of subsection 22(1)(b) of the CFA with respect to the Proposed Advisory Services, provided that:

(a) the obligations and duties of ProFund are set out in a written agreement with Felcom;

(b) the Proposed Advisory Services will only be provided where ProFund has contractually agreed with the Funds to be responsible for any loss that arises out of the failure of ProFund to meet the Standard of Care, and that such responsibility cannot be waived;

(c) ProFund will only provide the Proposed Advisory Services in connection with the Funds where the offering documents for the Funds discloses that Felcom is responsible for any loss that arises out of the failure of ProFund to meet the Standard of Care, and that:

(i) Felcom will be responsible for any advice provided by ProFund; and

(ii) there may be difficulty in enforcing any legal rights against ProFund because it is resident outside of Canada and all or a substantial portion of its assets are situated outside of Canada;

(d) ProFund maintains its registration as an investment adviser with the SEC;

(e) ProFund will only provide the Proposed Advisory Services in connection with the Funds so long as Felcom remains registered as an adviser under the Act and as a commodity trading manager under the CFA; and

(f) this order shall terminate three years from the date hereof.

"Paul M. Moore"
Commissioner
 
"Harold P. Hands"
Commissioner