Creststreet Resource Class - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications.
National Instrument 81-102 Mutual Funds, s. 19.1 -- relief from the illiquid investment restrictions -- A mutual fund needs relief from the prohibition from acquiring and holding illiquid investments in Section 2.4(1) of NI 81-102 -- The mutual fund is a fund established to hold assets rolled over from flow through LPs. The LPs were not restricted from holding illiquid assets. The LPs held more than 10% of their assets in illiquid assets. The mutual fund cannot comply with the prohibitions for a period of time on acquiring or holding illiquid securities. The investors in the mutual fund have previously owned units in the LPs.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.4, 19.1.
January 17, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND
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
CRESTSTREET RESOURCE CLASS
(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 Creststreet Asset Management Limited (the Manager), on behalf of the Filer, for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the requirements in section 2.4(1) of National Instrument 81-102 Mutual Funds (NI 81-102), to permit the Filer to acquire certain illiquid assets from each of Creststreet 2006 Limited Partnership and Creststreet 2006 (II) Limited Partnership (collectively, the Partnerships) on or about January 18, 2008, notwithstanding that, immediately after such acquisition, more than 10% of the net assets of the Filer, taken at market value at the time of the acquisition, will consist of illiquid assets (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. In addition, the following terms have the following meanings:
"Athabasca" means Athabasca Oil Sands Corp., a privately owned oil and gas company;
"Flow Through Shares" means common shares of resource issuers that are "flow-through shares" as defined in the ITA;
"Fund Prospectus" means the simplified prospectus of the Filer dated November 19, 2007;
"ITA" means the Income Tax Act (Canada);
"LP Prospectuses" means the prospectus of Creststreet 2006 Limited Partnership dated February 10, 2006 and the prospectus of Creststreet 2006 (II) Limited Partnership dated August 4, 2006; and
"Partners" means the limited partners and the general partner of each Partnership.
Representations
This decision is based on the following facts represented by the Manager on behalf of the Filer:
1) The Filer is a class of shares of Creststreet Mutual Funds Limited, a mutual fund corporation established under the Canada Business Corporations Act. The Filer is a reporting issuer in each of the provinces of Canada pursuant to the Fund Prospectus and annual information form dated November 19, 2007. As at December 14, 2007, the Filer had 7,890,107 Series A Shares issued and outstanding.
2) All of the assets of Creststreet 2006 Limited Partnership and Creststreet 2006 (II) Limited Partnership, including certain common shares of resource issuers that are Flow-Through Shares, will, pursuant to transfer agreements entered into with the Filer dated February 10, 2006 and August 4, 2006, respectively, be transferred to the Filer on a tax-deferred "rollover" basis in exchange for 2008 Series Shares of the Filer on or about January 18, 2008. The 2008 Series Shares are qualified for distribution under the Fund Prospectus.
3) The 2008 Series Shares received by each Partnership will have the same aggregate net asset value as the aggregate net asset value of each Partnership, determined on the same basis as the net asset value of the Filer.
4) Following the transfer of assets to the Filer, each Partnership will be dissolved and upon dissolution, the Partners will receive their pro rata interest in the 2008 Series Shares on a tax-deferred basis. The 2008 Series Shares will be automatically converted into Series A Shares of the Filer on September 30, 2008 on a one-for-one basis.
5) Details surrounding the transfer of assets from each Partnership to the Filer were disclosed in the LP Prospectuses. In addition, the LP Prospectuses and the Fund Prospectus disclosed the fact that the Filer would, if necessary, apply to the relevant securities or regulatory authorities to be exempted from certain investment restrictions applicable to the Filer as required in order to effect the tax-deferred "rollover" of the Partnerships assets in exchange for 2008 Series Shares.
6) The Filer will hold and dispose of Flow-Through Shares and other common shares acquired by the Filer from the Partnerships and invest the net proceeds of such dispositions and any cash on hand in a manner consistent with the current investment portfolio of the Filer, being a diversified portfolio consisting principally of equity securities of Canadian issuers.
7) The relief requested herein is necessary primarily as a result of the success of the investment made by the Filer in one issuer, Athabasca.
8) The Filer currently holds 1,000,000 warrants of Athabasca and Creststreet 2006 (II) Limited Partnership currently holds 330,000 common shares of Athabasca. The Filer received the Athabasca warrants on August 30, 2006 in connection with the purchase of Athabasca common shares, which, at the time, the total investment in Athabasca represented only 2.5% of the net assets of the Filer. Creststreet 2006 (II) Limited Partnership purchased the Athabasca common shares on November 21, 2006 which, at the time, represented only 3.4% of the net assets of Creststreet 2006 (II) Limited Partnership.
9) Since August 30, 2006, the value of Athabasca's warrants held by the Filer has increased from $0 to $7.44 per warrant. Since November 21, 2006, the value of Athabasca's common shares held by Creststreet 2006 (II) Limited Partnership has increased from $3.00 to $8.69, or approximately 190%. As a result, Athabasca's warrants and common shares represent approximately 11.7 and 12.8% of the net assets of the Filer and Creststreet 2006 (II) Limited Partnership, respectively, as of December 14, 2007.
10) The Filer and Creststreet 2006 (II) Limited Partnership base their valuations of the Athabasca common shares and warrants on actual prices at which securities of Athabasca have been issued or sold pursuant to transactions completed subsequent to the date of initial purchase by the Filer and Creststreet 2006 (II) Limited Partnership, respectively.
11) As at December 31, 2007, the net asset values of Creststreet 2006 Limited Partnership, Creststreet 2006 (II) Limited Partnership and the Filer were $15,797,160, $22,754,566 and $65,681,859, respectively.
12) It is expected that, immediately after the transfer of the assets of the Partnerships to the Filer, the Athabasca positions, combined with the other illiquid assets held by the Filer, will represent approximately 17.5% of the net assets of the Filer, taken at market value at the time of the transaction. However, in accordance with sections 2.4(2) and (3) of NI 81-102, the Filer will as quickly as is commercially reasonable, and in any event within 90 days, take all necessary steps to reduce this percentage to 15% or less.
13) The transfer of the illiquid assets of the Partnerships to the Filer may constitute a "purchase" of illiquid assets under section 2.4(1) of NI 81-102.
14) Substantially all of the shareholders of the Filer are former limited partners of flow-through limited partnerships established by the Manager from time to time and will have had exposure to illiquid assets prior to becoming shareholders of the Filer.
15) An amendment to the simplified prospectus and annual information form of the Filer will be filed with the Decision Makers to include disclosure about the relief requested herein, and pending receipt thereof, will be distributed to all new shareholders of the Filer.
16) The acquisition by the Filer of the assets from the Partnerships is in compliance with the investment objectives and strategies of the Filer.
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.