Newport Partners Income Fund - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- s. 13.1 of National Instrument 51-102 and s. 80 of the Securities Act (Ontario)-- Continuous Disclosure Obligations -- BAR -- issuer requires relief from the requirement in item 8.4 of NI 51-102 to include certain financial statements in a business acquisition report -- issuer filed a prospectus that included financial information for acquired operating partnerships as a probable significant acquisition; the financial information in the prospectus is for a period that ended not more that one interim period before the financial information that would be required under Part 8 of NI 51-102; issuer will include the financial information for the operating partnerships that was in the prospectus in the BAR; the business of the operating partnerships are not the primary business of the issuer; issuer will include in the BAR the interim financial statements of the acquired entity which carries on the primary business of the issuer; the issuer will not account for the acquired operating partnerships as continuity of interests.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S-5, as amended, s. 80.

National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4, 13.1.

December 23, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA, SASKATCHEWAN, MANITOBA, ONTARIO,

QUEBEC, 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

NEWPORT PARTNERS INCOME FUND (the "Filer")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker", and collectively the "Decision Makers") in each of the Jurisdictions has received an application (the "Application") from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") exempting the Filer from the requirements prescribed by section 8.4 of National Instrument 51-102 ("NI 51-102") which require that unaudited interim financial statements for the period ended June 30, 2005 for seven of the operating partnerships be included in a business acquisition report ("BAR") to be filed by the Filer in connection with the Filer's indirect acquisition of such operating partnerships (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 is an unincorporated, open-ended limited purpose trust established under the laws of Ontario.

2. The Filer's head office and principal business office is located in Toronto, Ontario.

3. Although the Filer is a reporting issuer, or the equivalent, in the Province of Prince Edward Island, the Yukon, the Northwest Territories and Nunavut, an application is not being made to the securities regulatory authorities in these jurisdictions as NI 51-102 has not been adopted in such jurisdictions.

4. Although the Filer is also a reporting issuer in the Province of British Columbia, an application is not being made in that jurisdiction as BC Implementing Rule 51-801 exempts issuers from part 8 of NI 51-102 in British Columbia.

5. The Filer is not in default of the Legislation, except that the Fund failed to file a BAR as required by section 8.4 of NI 51-102 on or before October 24, 2005.

6. The Fund intends to file a BAR as soon as possible, but is requesting certain relief from the form of the BAR required to be filed, in particular with respect to the financial information to be contained in the BAR as set out in more detail below.

7. On July 28, 2005, the Filer filed a final long form prospectus (the "IPO Prospectus") in connection with its initial public offering ("IPO") of 21,300,000 trust units of the Filer which was completed on August 8, 2005.

8. The Filer was created to acquire and indirectly hold an interest in Newport Private Yield LP ("NPY LP"), which in turn held interests, ranging from 45% to 100%, in 10 operating partnerships (the "Operating Partnerships") following the completion of the IPO.

9. The Fund is unique in that unlike many income funds which indirectly carry on a single business, the primary business being carried on by the Fund, indirectly through NPY LP, is the consolidated asset management business. As stated in the IPO Prospectus, the Fund indirectly through NPY LP partners with entrepreneurs who are known to NPY LP or who are introduced to NPY LP through the entrepreneurs or their network of business associates. NPY LP seeks to partner with entrepreneurs with a proven record of success and a desire to retain an equity interest in their business and who wish to continue to operate the business for the long-term. The Fund indirectly invests in businesses with a history of profitability and consistent cash flows, a strong record of growth and low maintenance capital expenditures. The entrepreneur typically retains a significant subordinated equity interest in either the Operating Partnership or NPY LP, thereby aligning the interests of the entrepreneur with those of NPY LP.

10. For purposes of NI 51-102, an acquisition of a business is a significant acquisition if it satisfies any of the asset test, the investment test or the income test set out in NI 51-102. Additionally, NI 51-102 provides that if an acquisition of a business is significant for purposes of NI 51-102, an issuer may recalculate the significance at a more recent date using the optional asset test, the optional investment test and the subsequent income test set out in NI 51-102. At the time of the IPO, all of the acquisitions completed by NPY LP prior to the IPO and those that were completed in connection with the IPO (including all "step-up" acquisitions) satisfied the investment test and the optional investment test at some level. However, the Filer requested and obtained relief from certain of the inclusion requirements from the various securities regulatory authorities in Canada.

11. If the Filer applies the financial statement inclusion requirements set out in NI 51-102 to the acquisitions that NPY LP completed prior to the IPO and contemporaneously with the completion of the IPO, the Filer would be required to update the financial statements included in the BAR to include unaudited interim financial statements for the period ended June 30, 2005 (as well as the comparable period in 2004) for seven of the Operating Partnerships.

12. Applying the financial statement inclusion requirements would impose unduly onerous requirements on the Filer. In lieu of these requirements, the Filer will include the following in respect to the financial statements to be included in the BAR:

(a) All of the financial statements in respect of the Operating Partnerships that were included in the IPO Prospectus.

(b) Pro forma financial statements for the year ended December 31, 2004 as well as the nine month period ended September 30, 2005.

(c) The unaudited interim financial statements of NPY LP for the period ended June 30, 2005.

13. The financial statements to be included in the BAR will provide investors with appropriate and sufficient disclosure regarding the Filer, NPY LP and the Operating Partnerships.

14. The primary business being carried on by the Filer is the consolidated asset management business being carried on by the Filer indirectly through NPY LP. The businesses of the Operating Partnerships are not the primary business of the Filer. Therefore the financial statements that are currently of direct relevance for investors are the consolidated financial statements of the Filer and NPY LP, as well as the pro forma financial statements of the Filer, not the individual financial statements for the Operating Partnerships.

15. Providing financial statements for an additional quarter for the 7 Operating Partnerships will not provide additional relevant information to an investor, because:

(a) the financial statements for the additional quarter are not materially different from the financial information related to the Operating Partnerships that was included in the IPO Prospectus;

(b) providing the financial information related to the Operating Partnerships that was included in the IPO Prospectus in the BAR will result in the BAR containing a meaningful level of financial statement disclosure concerning the Operating Partnerships;

(c) the Filer and NPY LP have included the results of each Operating Partnership in their consolidated interim financial statements for the nine month period ended September 30, 2005 (divided by operating segment); and

(d) the BAR will include the unaudited interim financial statements of NPY LP for the period ended June 30, 2005.

16. The Filer will include pro forma financial statements in the BAR which will combine the results of the Operating Partnerships for the nine month period ended September 30, 2005. This is the most relevant additional financial information being provided to investors since it will include the results of operations of all of the Operating Partnerships as though they had been acquired on January 1, 2004.

17. The Filer will not account for the acquisition of the Operating Partnerships as a continuity of interests.

18. Given the abundance of the proposed historical financial information to be included in the BAR, the provision of an additional quarter of financial information will not provide the investor with further relevant information.

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 provided that the form of BAR filed by the Filer includes the following:

1. All of the financial statements in respect of the Operating Partnerships that were included in the IPO Prospectus.

2. Unaudited pro forma consolidated statements of income of the Fund for the year ended December 31, 2004 as well as the nine month period ended September 30, 2005.

3. The unaudited interim financial statements of NPY LP for the three and six month period ended June 30, 2005.