First Asset Renewable Power Flow-Through Limited Partnership et al. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Proposed merger of limited partnerships into existing exchange-traded investment fund -- Relief required from prohibition in section 118(2)(b) of the Act and section 115(6) of Ontario Regulation 1015 and equivalent legislation in the Jurisdictions -- Securityholder meeting not required as the Partnerships and Continuing Fund are not NI 81-102 funds and constating documents of the Partnerships authorize their General Partner to effect a merger without a securityholder meeting.

Applicable Legislative Provisions

Securities Act (Ontario), ss. 118(2)(b), 121, 147.

Ontario Regulation 1015, s. 115(6).

March 20, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA, SASKATCHEWAN, ONTARIO,

NEW BRUNSWICK, NOVA SCOTIA AND

NEWFOUNDLAND AND LABRADOR

(the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

FIRST ASSET RENEWABLE POWER FLOW-THROUGH LIMITED PARTNERSHIP,

FIRST ASSET RENEWABLE POWER FLOW-THROUGH LP II,

FIRST ASSET RENEWABLE POWER FLOW-THROUGH LP III,

FIRST ASSET RENEWABLE POWER FLOW-THROUGH LP IV AND

FIRST ASSET POWERGEN FUND

(collectively, the "Funds")

AND

FIRST ASSET INVESTMENT MANAGEMENT INC.

("FAIMI" or the "Filer")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer, on behalf of the Funds for a decision under the securities legislation of the Jurisdictions (the "Legislation") granting relief from

(a) the restriction contained in the Legislation prohibiting a purchase or sale of any securities in which an investment counsel or any partner, officer, or associate of an investment counsel has a direct or indirect beneficial interest from or to any portfolio managed or supervised by the investment counsel, and

(b) the restriction in the Legislation which prohibits the portfolio manager from purchasing or selling the securities of any issuer from or to the account of a responsible person or any associate of a responsible person in connection with a proposed merger (the "Proposed Merger")

between First Asset Renewable Power Flow-Through Limited Partnership ("Power LP I"), First Asset Renewable Power Flow-Through LP II ("Power LP II"), First Asset Renewable Power Flow-Through LP III ("Power LP III"), First Asset Renewable Power Flow-Through LP IV ("Power LP IV", collectively with Power LP I, Power LP II and Power LP III, the "Partnerships") and First Asset PowerGen Fund ("PowerGen", collectively with the Partnerships, the "Funds") (the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

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

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations:

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

1. The Filer intends to merge the Partnerships and PowerGen, which will involve the transfer of the assets and liabilities of the Partnerships in exchange for units of PowerGen.

2. At the time the Proposed Merger is effected, the Filer will be the "portfolio manager" or a "responsible person" of each of the Funds for the purposes of the Legislation.

3. PowerGen is an "associate" of the Filer due to the fact that the Filer is its trustee.

4. The transfer of the investment portfolio of the Partnerships to PowerGen by operation of the Proposed Merger may be considered a sale of securities caused by the Filer from the Partnerships to the account of PowerGen for which the Filer is also portfolio manager, contrary to the Legislation.

5. Each of the Partnerships is a limited partnership established under the laws of the Province of Ontario pursuant to a limited partnership agreement, each as may be amended and restated from time to time, by the relevant general partner and the Filer is the investment advisor of each of the Partnerships.

6. PowerGen is an investment trust established under the laws of the Province of Ontario pursuant to a trust agreement dated April 25, 2001, as amended by supplemental trust agreements dated as of April 22, 2005 and April 26, 2006, and as amended and restated by the trust agreement dated October 30, 2006 and further amended by the supplemental trust agreement dated March 8, 2008 and the Filer is the manager and trustee of PowerGen.

7. Each of the Partnerships and PowerGen are reporting issuers in the Jurisdictions.

8. The outstanding units of PowerGen are listed and trade on the Toronto Stock Exchange ("TSX").

9. The Proposed Merger will be completed by the Partnerships in accordance with the permitted merger transaction provisions ("Permitted Merger Criteria") contained in the respective limited partnership agreements of each of the Partnerships. At a meeting of unitholders of the Partnerships held on December 7, 2007, the unitholders passed a resolution (the "Extraordinary Resolution") to approve the amendment of the Limited Partnership Agreements of each of the Partnerships. The Extraordinary Resolution grants the general partners of each Partnership (the "General Partners") the authority, without seeking unitholder approval, to merge the Partnerships in accordance with the Permitted Merger Criteria. The Permitted Merger Criteria authorizes the General Partners to take all steps that are necessary or desirable to merge the Partnerships with, either an issuer listed on the TSX or a mutual fund, in either case that is focused on the power sector and managed by an affiliate of the general partner. Accordingly, the Proposed Merger is not a matter that requires approval of the limited partners of the Partnerships.

10. The limited partners of the Partnerships will be notified of the Proposed Merger by issuance of a press release at least 20 days prior to the effective date of the Proposed Merger and a material change report will be filed.

11. The Proposed Merger is not a matter that requires unitholder approval under the PowerGen trust agreement.

12. The costs incurred in connection with the Proposed Merger will be borne by the Filer.

13. The Proposed Merger is expected to occur on or about April 15, 2008 (the "Effective Date").

14. The Proposed Merger will be referred to the Independent Review Committee of the Partnerships and PowerGen. A summary of the Independent Review Committee's decision will be included in a press release issued prior to the Effective Date.

15. It is anticipated that the following events will occur in order to give effect to the Proposed Merger:

(a) the exchange ratio pursuant to which the property of the Partnerships will be exchanged for PowerGen units (the "Exchange Ratio") will be calculated based on the net asset value of the units of PowerGen determined as at the close of trading on the TSX on the day prior to the Effective Date;

(b) the value of the property of the Partnerships will be based upon results of the audit of the Partnerships to be completed as at March 15, 2008. Approximately 79% of the aggregate net asset value of the Partnerships as at December 31, 2007 was constituted by shares of private companies. Ernst & Young LLP (the "Auditor") will conduct an audit of each Partnership's financial position as at March 15, 2008 (the "March Statements"), including a review to verify that the net asset value of each of the Partnerships is fairly stated in accordance with Generally Accepted Accounting Principles. As has been the case for the Partnerships' December 2007 and prior years' audited financial statements , the March Statements will reflect the values of the Partnerships' investments in private companies at those investments' fair values.

(c) The Filer will publicly announce the Exchange Ratio in a press release following the close of trading on the day prior to the Effective Date;

(d) on the Effective Date, each Partnership will transfer all of its property to PowerGen in consideration for the issuance of an appropriate number of PowerGen units based on the Exchange Ratio and the assumption of the liabilities of the Partnerships by PowerGen;

(e) on the Effective Date, the Filer will deliver to CDS Clearing and Depository Services Inc. a certificate evidencing the aggregate number of PowerGen units acquired by each Partnership pursuant to the Proposed Merger; and

(f) immediately thereafter, the Partnership units will be redeemed and the limited partners will receive their pro rata share of the PowerGen units. Limited partners of the Partnerships will not be required to take any action in order to be recognized as unitholders of PowerGen or to be in a position to trade the PowerGen units following the Proposed Merger.

16. The Filer will file a press release to announce the completion of the Proposed Merger.

17. The Proposed Merger has been considered by the Filer, as the investment advisor of the Partnerships, and as the manager and trustee of PowerGen, because the Funds share similar investment objectives and a similar investment methodology which is focused on investing in a portfolio of securities of public and private companies in the power generation and related energy infrastructure sectors.

18. It is expected that the Proposed Merger will not be effected on a tax-deferred rollover basis.

19. The Partnerships and PowerGen each calculate net asset value in accordance with Canadian GAAP and provide exposure to the same industry sector.

20. The Proposed Merger will increase the assets in the merged fund to a market capitalization larger than the existing market capitalization of each of the Partnerships taken separately. The Proposed Merger therefore is expected to increase the on-going liquidity of the units, reduce operational costs on a per unit basis, and promote improved operational efficiencies and enhanced economical viability for the merged Fund. The holders of units of the Partnership will receive as a consequence of the Proposed Merger a security that is listed and which trades on the TSX. Administrative cost savings will also be realized through eliminating the duplication of certain third party costs associated with operating and administering the Funds.

21. As discussed above, pursuant to the Proposed Merger, the Partnerships will transfer all of their property to PowerGen in consideration for the issuance by PowerGen of an appropriate number of PowerGen units based on the Exchange Ratio and the assumption by PowerGen of the liabilities and obligations of the Partnerships. The transfer of property from the Partnerships to PowerGen and the issuance of PowerGen units will be based on the relative net asset value of the Funds.

22. In the opinion of the Filer, for the reasons indicated above, the Proposed Merger is in the best interests of the unitholders of the Funds and such unitholders will not be disadvantaged by the Proposed Merger.

23. In the absence of the Requested Relief, the Filer would be prohibited from purchasing and selling the securities of the Partnerships in connection with the Proposed Merger.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met. The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.

"James E.A. Turner"
Vice-Chair
Ontario Securities Commission
 
"David L. Knight"
Commissioner
Ontario Securities Commission