One time trade of securities from non-redeemable investment fund to mutual fund in connection with rollover of flow-through LP -- funds managed by related fund managers and advised by the same portfolio manager -- non-redeemable investment fund is not a reporting issuer -- roll-over Transaction exempt from the self-dealing prohibitions in paragraph s. 13.5(2)(b)(iii), National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5(2)(b)(iii), 15.1.
Citation: Canoe Financial LP, Re, 2013 ABASC 318
July 24, 2013
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
CANOE FINANCIAL LP
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for exemptive relief from sub-paragraph 13.5(2)(b)(iii) of National Instrument 31-103 -- Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser (the Exemption Sought).
The Filer seeks the Exemption Sought with respect to and in order to effect the transfer, on or prior to June 30, 2015, of the assets of Canoe 2013 Flow-Through LP (the Partnership) to Canoe 'GO CANADA!' Fund Corp. (the Mutual Fund Corp.) in consideration for the issue to the Partnership of series A mutual fund shares of Canoe 'GO CANADA!' Canadian Energy Class (the Fund), a class of shares of the Mutual Fund Corp., on a tax-deferred basis followed by the dissolution and winding-up of the Partnership (the Roll-over Transaction).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator (the Principal Regulator) for this application;
(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 each of the provinces and territories of Canada other than Alberta and Ontario; and
(c) this decision is the decision of the Principal Regulator and also evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in MI 11-102 and National Instrument 14-101 -- Definitions have the same meaning if used in this decision unless otherwise defined herein.
This decision is based on the following facts represented by the Filer:
1. The Partnership is a limited partnership established under the laws of the Province of Alberta and will be governed by a partnership agreement to be dated on or about July 22, 2013 (the Partnership Agreement). Subject to receipt of the Exemption Sought, units of the Partnership will be issued on a private placement basis pursuant to exemptions from the prospectus requirement. The proceeds raised by the Partnership will be used principally to subscribe for flow-through shares of resource issuers in accordance with the investment criteria and restrictions set out in the Partnership Agreement. The Partnership Agreement and the Partnership's confidential information memorandum will provide that the Partnership intends, on or before June 30, 2015, to transfer its assets to the Mutual Fund Corp. (which specifically allocates such assets as assets of the Fund) in exchange for series A mutual fund shares of the Fund to be distributed to the investors in the Partnership. For ease of reference throughout this document, the transfer of the Partnership's assets to the Mutual Fund Corp. and the allocation of such assets to the Fund will be referred to as the transfer of the Partnership's assets to the Fund.
2. The Partnership is a "non-redeemable investment fund" as defined under applicable securities laws. Canoe 2013 General Partner Corp. (the General Partner), a corporation incorporated under the Business Corporations Act (Alberta), is the general partner of the Partnership, a wholly-owned subsidiary of the Filer and, pursuant to the Partnership Agreement, will have the exclusive authority to manage and operate the business and affairs of the Partnership. The Filer will be retained by the General Partner on behalf of the Partnership to manage and operate the business and affairs of the Partnership and to manage the investment portfolio of the Partnership.
3. The Fund is a class of shares of the Mutual Fund Corp., a mutual fund corporation incorporated under the Business Corporations Act (Alberta). Shares of the Fund are currently offered under a combined simplified prospectus and annual information form each dated December 11, 2012, as amended on March 12, 2013 and April 29, 2013. The Fund was established, in part, to facilitate exchange transactions from time to time pursuant to which the assets of one or more limited partnerships are transferred into the Fund in a mutual fund rollover transaction.
4. The Fund is a "mutual fund" as defined under applicable securities laws. The Filer is the manager of the Fund and also manages the investment portfolio of the Fund.
5. The Filer is registered as an exempt market dealer, investment fund manager and portfolio manager in all of the Provinces and Territories of Canada. The Filer provides a wide range of financial, operational, administrative and investor services to a variety of: (i) public mutual funds, closed-end investment funds and flow-through limited partnerships; (ii) private investment funds; and (iii) private clients. As of May 31, 2013, the Filer managed approximately $1.7 billion in assets and, through its predecessor, has been in the investment management business for over 13 years. The Filer is not currently in default of any requirements of securities legislation in any jurisdiction.
6. The Partnership is not, and will not be, a "reporting issuer" or equivalent under applicable securities laws.
7. The Fund is a reporting issuer under the applicable securities legislation of each of the Provinces and Territories of Canada and is not on the list of defaulting reporting issuers maintained under such securities legislation.
8. The General Partner, on behalf of the Partnership, and the Filer, on behalf of the Fund, intend to effect the Roll-over Transaction on or prior to June 30, 2015 (the Effective Date), subject to regulatory approval and the satisfaction of all other conditions precedent to the proposed transaction.
9. Although not required by National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107), an independent review committee (each, an IRC) for the Partnership will be appointed and maintained in all material respects as if NI 81-107 applied to the Partnership. Completion of the Roll-over Transaction will be subject to approval of the IRC for the Partnership, as if section 5.2(2) of NI 81-107 applied to such approval.
10. As required by NI 81-107, an IRC has been appointed for the Fund. Completion of the Roll-over Transaction will be subject to approval of the IRC for the Fund in accordance with section 5.2(2) of NI 81-107.
11. The Roll-over Transaction is not a matter that will require approval by the unitholders of the Partnership or the shareholders of the Fund.
12. No sales charges, redemption fees or other fees or commissions will be payable by unitholders of the Partnership in connection with the Roll-over Transaction.
13. Following completion of the Roll-over Transaction, the Fund will continue as a publicly offered open-end mutual fund and the Partnership will be wound up and terminated.
14. The Roll-over Transaction will be completed on a tax-deferred basis.
15. The transfer of the assets of the Partnership to the Fund (and the corresponding purchase of such assets by the Fund) as a step in the Roll-over Transaction may be considered a purchase or sale of securities, knowingly caused by a registered adviser that manages the investment portfolios of both the Partnership and the Fund, from the Partnership to, or by the Fund from, an investment fund for which a "responsible person" acts as an adviser, contrary to NI 31-103.
16. Completion of the Roll-over Transaction will involve two principal steps as follows:
(a) on the Effective Date, the Partnership will, on a tax-deferred basis, transfer its assets to the Fund in exchange for series A mutual fund shares of the Fund having a value equal to the Partnership's aggregate net asset value on the Effective Date; and
(b) within 60 days of the Effective Date, the series A mutual fund shares of the Fund that the Partnership received as consideration for the transfer of its assets will be distributed to the unitholders of the Partnership on a pro rata basis on the dissolution and winding up of the Partnership.
17. The transfer of assets from the Partnership to the Fund will take place at a value determined by common valuation procedures and unitholders of the Partnership will receive series A mutual fund shares of the Fund, the value of which are equal to the net asset value of the units held by such unitholder in the Partnership.
18. Unitholders of the Partnership will not be required to take any action in order to be recognized as shareholders of the Fund or to be in a position to redeem the shares of the Fund following completion of the Roll-over Transaction.
19. In the absence of this order, the Filer would be prohibited from knowingly causing the purchase and sale of the securities of the Partnership (and thereby transferring its investment portfolio to the Fund) in connection with the Roll-over Transaction.
20. The effect of the Roll-over Transaction will be that unitholders of the Partnership will become shareholders of the Fund and the Fund would then own directly all of the assets previously owned by the Partnership. The assets of the Partnership to be transferred on the Effective Date will be acceptable to the portfolio adviser of the Fund and will conform with the investment objectives of the Fund. The General Partner believes that the Roll-over Transaction will be beneficial to unitholders of the Partnership because:
(a) the Roll-over Transaction will provide for liquidity because the shares of the Fund distributed to unitholders will be redeemable;
(b) the Roll-over Transaction will provide for a tax-deferral should a unitholder wish to maintain his or her investment until a future date; and
(c) the alternative of liquidating the assets of the Partnership in a short period of time may have a larger negative impact on the Partnership's net asset value, in comparison to liquidating the corresponding assets of the Fund to fund redemption requests on a shareholder by shareholder basis.
21. The Filer believes that the Roll-over Transaction will be beneficial to shareholders of the Fund because:
(a) the Roll-over Transaction will result in the Fund having a larger portfolio and so should offer improved portfolio diversification to shareholders of the Fund; and
(b) shareholders of the Fund should benefit from increased economies of scale and lower proportionate fund operating expenses.
22. At the time of the Roll-over Transaction, the assets of the Partnership will be transferred to the Fund in accordance with the steps described above. Because the transfer of assets will take place at a value determined by common valuation procedures and unitholders of the Partnership will receive series A mutual fund shares of the Fund, the value of which are equal to the net asset value of the units held by such unitholder in the Partnership, it is the General Partner's and the Filer's opinion that there will be no conflict of interest for the Roll-over Transaction to be effected.
23. The General Partner and the Filer believe that the Roll-over Transaction will not adversely affect unitholders of the Partnership or shareholders of the Fund and will in fact be in the best interests of such unitholders and shareholders.
24. The benefits of the Roll-over Transaction are precisely what the unitholders of the Partnership will bargain for and will authorize the General Partner to implement when they make an investment decision to invest in the Partnership, as will be disclosed in the Partnership Agreement and the Partnership's confidential information memorandum. The granting of the Exemption Sought will provide potential unitholders of the Partnership with certainty prior to making an investment decision that, subject to the satisfaction of certain conditions, the Roll-over Transaction will occur on or prior to June 30, 2015.
25. Shareholders of the Fund also expect roll-over transactions into the Fund to occur from time to time when they make their decision to invest in the Fund, as a result of disclosure in the simplified prospectus of the Fund.
26. If NI 81-107 were applicable, and provided that the IRC for each of the Partnership and the Fund approve the Roll-over Transaction, the Roll-over Transaction would comply with section 6.1(2) of NI 81-107 and the Exemption Sought would not be necessary.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought for the Roll-over Transaction is granted, provided that:
(a) the IRC for the Fund has approved the Roll-over Transaction on behalf of the Fund, in accordance with section 5.2(2) of NI 81-107;
(b) the IRC for the Partnership has approved the Roll-over Transaction on behalf of the Partnership, as if section 5.2(2) of NI 81-107 applied to such approval;
(c) the transfer of the assets of the Partnership to the Fund will not adversely impact the liquidity of the Fund;
(d) the transfer of the assets of the Partnership to the Fund will not adversely impact the Fund's compliance with applicable securities law requirements; and
(e) the Roll-over Transaction complies with paragraphs (c) to (g) of section 6.1(2) of NI 81-107.