Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval granted for change of manager of mutual funds –– change of manager is not detrimental to unitholders or the public interest – change of manager to be approved by the funds’ unitholders at a special meeting of unitholders.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(a), 5.5(3), 5.7.

June 29, 2017

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
SPROTT ASSET MANAGEMENT LP (SAM)

AND

SPR & CO LP
(the Purchaser, and together with SAM, the Filers)

AND

THE FUNDS
(as defined herein)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval of the proposed change of manager of the funds listed in Appendix “A” (the Funds) from SAM to the Purchaser (the Change of Manager) under section 5.5(1)(a) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval 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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada.

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 Filers:

The Manager

1.             SAM is a limited partnership established under the laws of the Province of Ontario with its head office in Toronto, Ontario. Sprott Asset Management GP Inc., the general partner of SAM, is a wholly-owned subsidiary of Sprott Inc., a public company incorporated under the laws of the Province of Ontario and listed on the Toronto Stock Exchange.

2.             SAM is the manager and portfolio manager of each Fund. SAM is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador, as a portfolio manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Saskatchewan, as an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec, and Saskatchewan and as a commodity trading manager in Ontario.

3.             SAM is not in default of any requirements under applicable securities legislation.

The Funds

4.             The trust funds as listed in Appendix “A” (the Trust Funds) are open-ended mutual fund trusts established pursuant to an amended and restated master trust agreement dated February 13, 2004, as amended, between SAM and RBC Investor Services Trust as trustee (RBC), pursuant to which RBC as trustee has delegated the management of the business, operations and affairs of the Trust Funds to SAM.

5.             The corporate class funds as listed in Appendix “A” (the Corporate Class Funds, and together with the Trust Funds, collectively, the Mutual Funds) are open-ended mutual funds established pursuant to articles of incorporation under the laws of Ontario dated July 28, 2011, as amended. The management services are provided by SAM to the Corporate Class Funds pursuant to a master management agreement dated September 23, 2011 between the Corporation and SAM.

6.             The securities of the Mutual Funds are currently offered for sale in each Jurisdiction under simplified prospectuses, annual information forms and fund facts dated April 25, 2017, as amended from time to time, prepared in accordance with the requirements of National Instrument 81-101 Mutual Fund Prospectus Disclosure.

7.             Sprott Energy Opportunities Trust is a non-redeemable investment fund established as a trust pursuant to a trust agreement dated November 30, 2016 between SAM and RBC as trustee, pursuant to which RBC as trustee has delegated the management of the business, operations and affairs of Sprott Energy Opportunities Trust to SAM.

8.             The securities of Sprott Energy Opportunities Trust were offered for sale in each Jurisdiction under a long form prospectus dated December 6, 2016 and prepared in accordance with the requirements of National Instrument 41-101 General Prospectus Requirements (NI 41-101).

9.             Sprott 2016-II Flow-Through Limited Partnership is a non-redeemable investment fund established as a limited partnership pursuant to an amended and restated limited partnership agreement dated September 22, 2016. The management services are provided by SAM to Sprott 2016-II Flow-Through Limited Partnership pursuant to a management agreement dated September 22, 2016 between Sprott 2016-II Flow-Through Limited Partnership and SAM.

10.          The securities of Sprott 2016-II Flow-Through Limited Partnership were offered for sale in each Jurisdiction under a long form prospectus dated September 22, 2016 and prepared in accordance with the requirements of NI 41-101.

11.          Sprott 2017 Flow-Through Limited Partnership is a non-redeemable investment fund established as a limited partnership pursuant to an amended and restated limited partnership agreement dated January 25, 2017. The management services are provided by SAM to Sprott 2017 Flow-Through Limited Partnership pursuant to a management agreement dated January 25, 2017 between Sprott 2017 Flow-Through Limited Partnership and SAM.

12.          The securities of Sprott 2017 Flow-Through Limited Partnership were offered for sale in each Jurisdiction under a long form prospectus dated January 25, 2017 and prepared in accordance with the requirements of NI 41-101.

13.          Each Fund is a reporting issuer under the appli-cable securities legislation of each Jurisdiction and is not in default of any requirements under applicable securities legislation.

The Purchaser

14.          The Purchaser is a newly established limited partnership which was established on April 25, 2017 under the laws of the Province of Ontario with its head office in Toronto, Ontario.

15.          The Purchaser has applied for registration as an investment fund manager in Ontario, Quebec and Newfoundland & Labrador, as a portfolio manager in Ontario, British Columbia, Alberta, Saskatch-ewan, Manitoba, New Brunswick, Nova Scotia and Newfoundland & Labrador, and as an exempt market dealer in Ontario, British Columbia, Alber-ta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Newfoundland & Labrador and Quebec.

16.          The Purchaser is not in default of any require-ments under applicable securities legislation.

The Proposed Transaction

17.          2568004 Ontario Inc., the sole limited partner of the Purchaser and the sole shareholder of 2573322 Ontario Inc., the general partner of the Purchaser, has entered into a definitive asset purchase agreement (the Purchase Agreement) pursuant to which 2568004 Ontario Inc. has agreed to purchase from SAM the right to manage the Funds, along with certain related assets, in consideration for a payment of cash (the Pro-posed Transaction). Prior to Closing (defined below), 2568004 Ontario Inc. will assign its rights under the Purchase Agreement with respect to the right to manage the Funds to the Purchaser.

18.          The Proposed Transaction is scheduled to close on the third business day following the day on which the conditions relating to the Proposed Transaction set out in the Purchase Agreement have been satisfied or waived (the Closing). This Proposed Transaction will result in the Change of Manager.

19.          The Proposed Transaction is subject to the receipt of all necessary regulatory and securityholder approvals, securities registrations and the satisfaction or waiver of all other conditions to the Proposed Transaction.

20.          In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the Proposed Transaction was issued on April 10, 2017 and subsequently filed on SEDAR. In addition, a material change report was filed on April 13, 2017 and details of the Proposed Transaction were included in the renewal simplified prospectuses, annual information forms and fund facts for the Mutual Funds, which were filed on April 25, 2017.

21.          As required by National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), SAM presented the Change of Manager to the IRC for a recommendation on April 24, 2017. The IRC reviewed the potential conflict of interest matters related to the Change of Manager and provided its recommendation for the Change of Manager, after determining whether the Change of Manager, if implemented, would achieve a fair and reasonable result for the Funds.

22.          The approval of securityholders of the Funds is required under section 5.1(b) of NI 81-102. A special meeting of the securityholders of the Funds will be held on June 30, 2017 for securityholders to consider the Change of Mana-ger (the Meeting). The notice of Meeting and the management information circular in respect of the Meeting (the Circular) was made available on SAM’s website and copies thereof were filed on SEDAR in accordance with applicable securities legislation. The Circular contained sufficient information regarding the business, management and operations of the Purchaser, including details of its officers and directors, and all information necessary to allow securityholders to make an informed decision about the Proposed Transaction and the Change of Manager. Pursuant to exemptive relief obtained by SAM on October 27, 2016, SAM mailed a notice-and-access document to securityholders of the Funds on May 31, 2017 setting out how the Meeting Materials may be accessed by securityholders of the Funds, amongst other details. All other information and documents necessary to comply with applicable proxy solicitation requirements of securities legislation for the Meeting were mailed to securityholders of the Funds. The Change of Manager will not proceed with respect to a Fund unless securityholders of the Fund approve the Change of Manager at the Meeting.

Impact of Change of Manager of the Funds

23.          Upon Closing, the Purchaser will become the investment fund manager and portfolio manager of the Funds.

24.          RBC will remain the trustee of the Trust Funds and Sprott Energy Opportunities Trust and RBC will remain the custodian of the Funds.

25.          SAM will be appointed sub-advisor for Sprott Resource Class, Sprott Gold Bullion Fund, Sprott Silver Bullion Fund, Sprott Gold and Precious Minerals Fund, Sprott Silver Equities Class, Sprott 2016-II Flow-Through Limited Partnership and Sprott 2017 Flow-Through Limited Partnership (the Sub-Advised Funds), pursuant to sub-advisory agreements (the Sub-Advisory Agree-ments) to be entered into between the Purchaser and SAM. The Sub-Advised Funds are expected to continue to have the same individuals principally responsible for the portfolio management of the Sub-Advised Funds upon Closing.

26.          Each of the individuals principally responsible for the portfolio management of the Funds, other than the Sub-Advised Funds, will be offered a written offer of employment by the Purchaser to continue as an employee of the Purchaser effective as of the Closing.

27.          The current members of the IRC of the Funds will cease to act as members pursuant to Section 3.10(1)(b) of NI 81-107 and it is anticipated that the Purchaser will appoint the current members of the IRC of the Funds as the IRC of the Funds upon Closing.

28.          The individuals that are currently principally responsible for the investment fund management of the Funds will continue to be responsible for the investment fund management of the Funds upon Closing.

29.          The Purchaser intends to manage and administer the Funds in a similar manner as SAM. There is no current intention to change the investment objectives, investment strategies or fees and expenses of the Funds.

30.          The Transaction is not expected to have any material impact on the business, operations or affairs of the Funds or the securityholders of the Funds. The Funds will not bear any of the costs and expenses associated with the Proposed Transaction or Change of Manager.

31.          The individuals that will continue to be principally responsible for the investment fund management of the Funds upon Closing have the requisite integrity and experience, as required under Section 5.7(1)(a)(v) of NI 81-102.

32.          Except for the Sub-Advisory Agreements, all material agreements regarding the administration of the Funds will remain the same, other than with respect to any amendments required to reflect the Proposed Transaction.

33.          Other than as required to reflect the Transaction, the Purchaser does not currently contemplate any changes to the material contracts of the Funds.

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 Approval Sought is granted.

“Vera Nunes”
Manager
Investment Funds & Structured Products Branch
Ontario Securities Commission

 

Appendix “A”

FUNDS

Trust Funds

Sprott Enhanced Balanced Fund
Sprott Small Cap Equity Fund
Sprott Canadian Equity Fund
Sprott Global Infrastructure Fund
Sprott Global Real Estate Fund
Sprott Diversified Bond Fund
Sprott Energy Fund
Sprott Gold Bullion Fund
Sprott Silver Bullion Fund
Sprott Gold and Precious Minerals Fund
Sprott Short-Term Bond Fund

Corporate Class Funds

Sprott Enhanced Equity Class
Sprott Enhanced U.S. Equity Class
Sprott Enhanced Balanced Class
Sprott Focused Global Dividend Class
Sprott Focused U.S. Dividend Class
Sprott Focused Global Balanced Class
Sprott Focused U.S. Balanced Class
Sprott Diversified Bond Class
Sprott Short-Term Bond Class
Sprott Silver Equities Class
Sprott Real Asset Class
Sprott Resource Class

Closed End Funds

Sprott Energy Opportunities Trust
Sprott 2016-II Flow-Through Limited Partnership
Sprott 2017 Flow-Through Limited Partnership