Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from National Instrument 81-106 Investment Fund Continuous Disclosure to permit an investment fund representing the top fund of a two-tiered fund structure that use specified derivatives to calculate their NAV on a weekly basis and not on a daily basis, subject to certain conditions.

Applicable Legislative Provisions

National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 14.2(3)(b) and 17.1.

October 29, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

PATHFINDER CONVERTIBLE DEBENTURE FUND

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the requirement in section 14.2(3)(b) of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) that the net asset value of an investment fund must be calculated at least once every business day if the investment fund uses specified derivatives (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, Saskatchewan, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer will be an investment trust to be established under the laws of the Province of Alberta pursuant to a declaration of trust.

2. Middlefield Fund Management Limited (the Manager) and Middlefield Group Limited are the promoters the Filer. The Manager is also the manager of the Filer and will be responsible for providing or arranging for the provision of administrative services required by the Filer. The head office of the Manager is located in Ontario.

3. Neither the Filer nor the Manager is in default of securities legislation in any jurisdiction.

4. The Filer filed a preliminary prospectus (the Preliminary Prospectus) dated October 2, 2009 in each of the provinces and territories of Canada with respect to a public offering (the Offering) of combined units (the Combined Units and each a Combined Unit) of the Filer, a receipt for which was issued by the Ontario Securities Commission on October 5, 2009. Each Combined Unit will consist of one trust unit (a Unit and each holder of a Unit, a Unitholder) of the Filer and one Unit purchase warrant (a Warrant) of the Filer. Each Warrant will entitle the holder to purchase one Unit at a price of $12.00 on or before November 30, 2010. The Units and Warrants comprising the Combined Units will separate immediately following the earlier of the closing of the Over-Allotment Option (as defined in the Preliminary Prospectus) and 30 days after the closing of the Offering. The Offering of the Combined Units is a one-time offering and the Filer will not continuously distribute Combined Units, Units or Warrants.

5. The Filer's investment objectives are to: (i) pay monthly distributions to Unitholders on a tax-advantaged basis initially targeted to be 6.5% per annum on the original issue price of $12.00 per Combined Unit, and (ii) maximize total after-tax returns for Unitholders over the life of the Filer. The Filer will seek to achieve its investment objectives through exposure to an actively managed portfolio (the Portfolio) consisting primarily of convertible debentures.

6. The Manager intends to implement a liquidity transaction, either by way of a conversion of the Filer to an open-ended mutual fund or by way of a merger with any other fund managed by the Manager or an affiliate thereof, on or before November 28, 2014. If a liquidity transaction is not implemented, the Filer will terminate on December 31, 2014 (the Termination Date).

7. The Portfolio is expected to be held by Convertible Debenture Trust (the Underlying Fund), a trust to be established under the laws of the Province of Alberta pursuant to a declaration of trust. The Manager is also the manager of the Underlying Fund.

8. The Underlying Fund will be established for the purpose of acquiring and holding the Portfolio. The Filer will seek to achieve its investment objective by entering into a forward purchase and sale agreement (the Forward Agreement) with a Canadian chartered bank or one of its affiliates whose obligations are guaranteed by the Canadian chartered bank (the Counterparty) pursuant to which the Counterparty will agree to deliver to the Filer on the Termination Date "Canadian securities" (within the meaning of the Income Tax Act (Canada)) with an aggregate value equal to the redemption proceeds of a corresponding number of units of the Underlying Fund and/or the proceeds realized by the Counterparty on the disposition of the assets in the Portfolio to the Counterparty, net of any leverage provided through the Forward Agreement and any amount owing by the Filer to the Counterparty. The Forward Agreement constitutes a specified derivative.

9. The Filer will use the net proceeds of the Offering for the pre-payment of its purchase obligations under the Forward Agreement.

10. The Forward Agreement provides that the Filer may settle the Forward Agreement, in whole or in part, prior to the Termination Date: (i) to fund distributions on the Units; (ii) to fund redemptions and repurchases of Units from time to time; (iii) to fund operating expenses and other liabilities of the Filer; and (iv) for any other reason.

11. The Toronto Stock Exchange (the TSX) has conditionally approved the listing of the Units.

12. Units may be redeemed on May 31 of each year commencing in 2011 (but must be surrendered for redemption in each year during the period from and including the first business day in April until 5:00 pm (Toronto time) on April 15 in each year), subject to certain conditions, at a redemption price per Unit to be disclosed in the final prospectus of the Filer (less any costs and expenses in connection with funding the redemption, including, without limitation, if the Manager determines that it is not practicable or necessary for the Underlying Fund to sell Portfolio securities to fund such redemption, the aggregate of all brokerage fees, commissions and other transaction costs, if any, that the Manager estimates would have resulted from such a sale).

13. In addition to such annual redemption right, Units may be redeemed on the second last business day of each month (but must be surrendered for redemption on a date that is as least 10 business days prior to the last business day of such month), subject to certain conditions, at a redemption price computed by reference to the market price of the Units on the applicable monthly redemption date.

14. The units of the Underlying Fund will be redeemable at the demand of unitholders of the Underlying Fund. The units of the Underlying Fund will be redeemed at a price computed by reference to the NAV per unit of the Underlying Fund.

15. Under section 14.2(3)(b) of NI 81-106, an investment fund that is a reporting issuer that uses or holds specified derivatives, such as the Filer intends to do, must calculate its net asset value on a daily basis.

16. The Filer proposes to calculate net asset value per Unit on the Thursday of each week (or if any Thursday is not a business day, the immediately preceding business day) and on any other date on which the Manager elects, in its discretion, to calculate the net asset value per Unit.

17. The Preliminary Prospectus discloses, and the final prospectus of the Filer will disclose, that the net asset value per Unit will be calculated on a weekly basis. The Manager will provide to the public on request and will post on its website at www.middlefield.com the net asset value per Unit.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) the Units are listed on the TSX; and

(b) the Filer calculates the net asset value per Unit at least weekly.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission