Acruity Funds Ltd. - s. 147

Headnote

Mutual fund dealer exempted from the requirements to include the amount of its liability under certain limited recourse participating securitized promissory notes that may, from time to time, be issued by the dealer in: (i) the calculation by the dealer of its "total liabilities" for the purpose of determining the "minimum free capital" that would otherwise be required to be maintained by the dealer pursuant to subsection 107(1) of the Regulation; and (ii) in the calculation by the dealer of the amount of "total liabilities" required to be identified in Statement C of Form 9 to the Regulation which the dealer is required, from time to time, to deliver to the Commission in accordance with section 141 of the Regulation -- Exemption is subject to conditions.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., s. 147.

Regulations Cited

Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., ss. 107(1), 141, Form 9, Statement C.

IN THE MATTER OF

THE SECURITIES ACT, R.S.O. 1990,

CHAPTER S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF

R.R.O. 1990, REGULATION 1015,

AS AMENDED (the "Regulation")

AND

IN THE MATTER OF

ACUITY FUNDS LTD.

ORDER

(Section 147 of the Act)

UPON the application (the "Application") of Acuity Funds Ltd. ("Acuity") to the Ontario Securities Commission (the "Commission") for an order, pursuant to section 147 of the Act, exempting Acuity from the requirements to include the amount of its liability under certain limited recourse participating securitized promissory notes (each, a "Limited Recourse Note") that may, from time to time, be issued by Acuity in:

(i) the calculation by Acuity of its "total liabilities" for the purpose of determining the "minimum free capital" that would otherwise be required to be maintained by Acuity pursuant to subsection 107(1) of the Regulation; and

(ii) in the calculation by Acuity of the amount of "total liabilities" required to be identified in Statement C of Form 9 to the Regulation which Acuity is required, from time to time, to deliver to the Commission in accordance with section 141 of the Regulation.

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

AND UPON Acuity having represented to the Commission that:

1. Acuity, a corporation incorporated under the laws of Ontario, is registered under the Act as a dealer, in the categories of "mutual fund dealer" and "limited market dealer".

2. By a decision of the Director dated June 7, 2001, In the Matter of Acuity Funds Ltd., Acuity was, pursuant to section 5.1 of Ontario Securities Commission Rule 31-506 SRO Membership -- Mutual Fund Dealers (the "SRO Membership Rule"), exempted from the provisions of section 2.1 and 3.1 of the SRO Membership Rule which would otherwise require that Acuity:

(i) be a member of the Mutual Fund Dealers Association of Canada (the "MFDA") on or after July 2, 2002; and

(ii) file with the MFDA, no later than May 23, 2001, an application and corresponding fees for such membership,

subject to certain terms and conditions.

3. Acuity is not registered under the Commodity Futures Act ("CFA") as "futures commission merchant" or in any other category of registration under the CFA.

4. Acuity is currently the manager and trustee of sixteen (16) mutual fund trusts (the "Current Acuity Mutual Funds"), listed in the attached Schedule "A", that offer their securities for sale, pursuant to a prospectus, on a deferred charge basis. Acuity may, in the future, also act as the manager and trustee for certain other open-end mutual funds (each, a "Future Acuity Mutual fund") that will offer their securities for sale, pursuant to a prospectus, on a deferred charge basis. (Current Acuity Mutual Funds and Future Acuity Mutual Funds are herein referred to, collectively, as the "Acuity Mutual Funds" and, individually, as an "Acuity Mutual Fund".)

5. Shares or units (each, an "Acuity Mutual Fund Security") of each of the Current Acuity Mutual Funds are currently offered for sale in all provinces and territories of Canada under a simplified prospectus dated October 13, 2003. Each Acuity Mutual Fund is, or will be, at the relevant time, subject to the provisions of National Instrument 81-102 -- Mutual Funds.

6. Acuity proposes to issue and offer, from time to time, in one or more offerings (each an "Offering") on a private placement basis, Limited Recourse Notes, together with undivided interests (each, a "Recourse Source Interest") in the following future revenues (the "Recourse Sources") of Acuity:

(i) certain management fees that are payable to Acuity in respect of one or more of the Acuity Mutual Funds; and

(ii) certain charges that are payable to Acuity, in certain circumstances, by the holders of Acuity Mutual Fund Securities of one or more Acuity Mutual Funds upon their redemption of Acuity Mutual Fund Securities.

7. The Limited Recourse Notes and Recourse Source Interests will be issued under the terms of one or more Note and Participation Agreements (each, a "Limited Recourse Note Agreement") made between Acuity, one or more of the Acuity Mutual Funds and the holders (each, a "Limited Recourse Note Holder"), from time to time, of the corresponding Limited Recourse Notes.

8. The net proceeds from each Offering will be used by Acuity to, among other things, finance the payment of selling commissions expenses and related expenses that are payable, or have been paid, by Acuity on the sale of the corresponding Acuity Mutual Fund Securities.

9. Under the terms of each of the Limited Recourse Note Agreement, Limited Recourse Note Holders will be limited in their recourse for any amounts owing by Acuity under their Limited Recourse Notes to the corresponding Recourse Sources.

10. Each of the Limited Recourse Note Agreements will provide that, if the corresponding Recourse Sources are insufficient to fully discharge the principal and interest then owing under the corresponding Limited Recourse Notes, all obligations of Acuity in respect of such Limited Recourse Notes shall thereupon cease, and no further action, proceeding, claim or judgment for any deficiency shall be commenced, sought or obtained against Acuity, its affiliates, any directors, officers, employees or agents of Acuity or any affiliate thereof, or against any Acuity Mutual Funds.

11. The intent of the proposed Offerings is to replicate, in general terms, the economics of previous mutual funds limited partnerships which were used to finance deferred sales charges incurred by mutual fund managers during the 1980's and 1990's.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 147 of the Act, that Acuity is exempt from the requirement to include the amount of its liability under Limited Recourse Notes in:

(i) the calculation by Acuity of its "total liabilities" for the purpose of determining the "minimum free capital" that would otherwise be required to be maintained by Acuity pursuant to subsection 107(1) of the Regulation; and

(ii) in the calculation by Acuity of the amount of its "total liabilities" required to be identified in Statement C of Form 9 to the Regulation which Acuity would otherwise be required, from time to time, to deliver to the Commission in accordance with section 141 of the Regulation;

PROVIDED THAT:

(A) in the case of each Statement C, any amount (the "Excluded Amount") not included in "total liabilities" that would, but for this Order, otherwise be required to be included, is identified by way of a note which: specifies the Excluded Amount; refers to this Decision; identifies the corresponding Limited Recourse Notes, including the principal amount then outstanding and the applicable rate of interest (or other amounts) then owing under the Limited Recourse Notes; and identifies the corresponding Limited Recourse Sources;

(B) in the case of each Statement C, and each determination of "minimum free capital", Acuity does not recognize as any asset any amount of Limited Recourse Notes Proceeds, unless the amount is no longer owing under the corresponding Limited Recourse Notes; and

(C) not less than five days after the issue of any Limited Recourse Notes comprising an Offering, Acuity delivers to the Commission (Attention: Manager, Registrant Regulation and Manager, Compliance) written notice of the issuance, which: includes a copy of this Decision; identifies the corresponding Limited Recourse Notes, including the principal amount then outstanding and the applicable rate of interest (or other amounts) then owing under the Limited Recourse Notes; and identifies the corresponding Limited Recourse Sources.

March 2, 2004.

SCHEDULE "A"

CURRENT ACUITY MUTUAL FUNDS