Merrill Lynch Alternative Investments LLC et al. - s. 80 of the CFA

Headnote

Section 80 of the Commodity Futures Act (Ontario) (the CFA) - relief from the registration requirements of paragraph 22(1)(b) of the CFA granted to non-Canadian adviser in respect of the provision of advisory services to certain mutual funds that are primarily offered outside of Canada that invest in mutual funds that are also primarily offered outside Canada relating to trades in commodity futures and options traded on commodity futures exchanges outside Canada and cleared through clearing corporations outside Canada.

Statutes Cited

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

OSC Rule 35-502 -- Non-Resident Advisors.

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

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

AND

IN THE MATTER OF

MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC,

COAST ASSET MANAGEMENT LP, PLUSFUNDS GROUP INC. AND

VEGA ASSET MANAGEMENT (USA) LLC

 

ORDER

(Subsection 80 of the CFA)

UPON the application (the Application) of Merrill Lynch Alternative Investments LLC (Merrill), Coast Asset Management, LP (Coast), PlusFunds Group Inc. (PlusFunds) Vega Asset Management (USA) LLC (Vega) and future fund managers (as described below) (collectively, the Applicants) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA that each of the Applicants and their respective directors, partners, officers, and employees are exempt, for a period of three years, from the requirements of paragraph 22(1)(b) of the CFA in respect of advising certain mutual funds (the Funds), the securities of which will be offered primarily outside of Canada but may also be privately placed in Ontario, in respect of investments in investment vehicles that may invest in commodity futures contracts and options traded on commodity futures exchanges outside Canada and cleared through clearing corporations outside of Canada, subject to certain terms and conditions;

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

AND UPON the Applicants having represented to the Commission as follows.

1. Merrill is a limited liability corporation incorporated under the laws of Delaware. Coast is a Delaware limited partnership. PlusFunds is a Delaware corporation. Vega is a Delaware limited liability company. None of the Applicants is resident in Canada.

2. The Applicants may also include, from time to time, other entities that provide advice with respect to commodity futures and options contracts to the Funds, which may subsequently execute and submit to the Commission a verification certificate referencing this Application and confirming the truth and accuracy of the information set out in this Application with respect to that particular Applicant.

3. Merrill has designed an investment program known as The Merrill Lynch HedgeAccess Program (the Program) to make available to qualified Merrill clients a proprietary family of Funds which provide access to hedge funds (the Underlying Funds) managed by third parties. The advantages of the Program include reduced minimum investments and advantageous redemption and exchange privileges compared to investing in the Underlying Funds directly.

4. There are currently 14 Funds in the Program each of which invests substantially all of its assets in an Underlying Fund, managed by a different manager unaffiliated with Merrill. Merrill is the manager of each of the Funds. The Funds in the Program change from time to time as Merrill selects new Underlying Funds for the Program or discontinues the offering of an existing Fund.

5. The Funds are, or will be, established outside of Canada. Securities of the Underlying Funds and the Funds are, or will be, offered primarily outside of Canada. Securities of the Funds will be offered to Ontario residents in reliance on an exemption from the prospectus requirements of the Securities Act. Such securities will be offered and distributed in Ontario through registrants (the Registrants), as defined under the Securities Act (Ontario), which have the appropriate registration, in reliance upon a prospectus exemption from the requirements of the Securities Act (Ontario), and in reliance upon an exemption from the adviser registration requirement of the Securities Act (Ontario) under section 7.10 of Commission Rule 35-502 Non-Resident Advisors (the Rule).

6. Three Underlying Funds that may invest in commodity futures contracts and options traded on organized exchanges outside of Canada and cleared through clearing corporations located outside of Canada. These Underlying Funds are managed by Coast, PlusFunds and Vega, respectively.

7. Each of the Applicants, where required is, or will be, registered or licensed under the applicable legislation of its principal jurisdiction to provide advice to the Funds or Underlying Funds, as the case may be, or is or will be entitled to rely on appropriate exemptions from such registrations or licenses pursuant to the applicable legislation of its principal jurisdiction. In particular:

i) Merrill is currently registered as a commodity trading advisor/commodity pool operator with the U.S. Commodity Futures Trading Commission (the CFTC) and is a member of the National Futures Association (the NFA);

ii) Coast is currently registered with the CFTC and the NFA as a commodity trading advisor/commodity pool operator;

iii) PlusFunds is currently registered with the CFTC and the NFA as a commodity pool operator/commodity trading advisor; and

iv) Vega is currently registered as a commodity trading advisor/commodity pool operator with the CFTC and is a member of the NFA.

8. None of the Applicants is registered in any capacity under the CFA or the Securities Act (Ontario).

9. None of the Funds is, and none have a current intention of becoming, a reporting issuer in Ontario or in any other Canadian jurisdiction.

10. Prospective investors in the Funds who are Ontario residents will receive disclosure (the Statement) that includes (a) a statement that there may be difficulty in enforcing legal rights against the applicable Fund (or any of the Underlying Funds), the Applicant advising the relevant Fund, the trustee or the manager of the applicable Fund (or any of the Underlying Funds), because they are resident outside of Canada and all or substantially all of their assets are situated outside of Canada; and (b) a statement that Merrill, and where applicable, the managers advising the relevant Underlying Fund, are not, or will not be, registered with or licensed by any securities regulatory authority in Canada and, accordingly, the protections available to clients of a registered advisor will not be available to purchasers of securities of the Fund.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to grant the exemptions requested on the bases of the terms and conditions proposed,

IT IS ORDERED pursuant to section 80 of the CFA that each of the Applicants and their respective directors, partners, officers, and employees responsible for advising the Funds or Underlying Funds are not subject to the requirements of paragraph 22(1)(b) of the CFA in respect of their advisory activities in connection with the Funds and the Underlying Funds, for a period of three years, provided that at the time such activities are engaged in:

a) any such Applicant, where required, is or will be, registered or licensed under the applicable legislation of its principal jurisdiction to provide advice to the Funds, or is, or will be entitled to rely on appropriate exemptions from such registrations or licenses pursuant to the applicable legislation of its principal jurisdiction;

b) the Underlying Funds invest in commodity futures contracts and options traded on organized exchanges outside of Canada and cleared through clearing corporations located outside of Canada and other derivative instruments traded over the counter;

c) securities of the Funds will be offered primarily outside of Canada and will only be distributed in Ontario through Registrants, and in reliance upon an exemption from the requirements of sections 53 and 62 of the Securities Act and upon an exemption from the advisor registration requirement provided under section 7.10 of the Rule;

d) prospective investors in the Funds who are Ontario residents will receive the Statement prior to entering into an agreement in respect of an investment in the Program; and

e) any applicant whose name does not specifically appear in this Order and who proposes to rely on the exemption granted under this Order, shall, as a condition to relying on such exemption, have executed and filed with the Commission a verification certificate referencing this Order and confirming the truth and accuracy of the Application with respect to that particular applicant.

January 13, 2004.

"Paul M. Moore"

"H. Lorne Morphy"