First Asset Pipes & Power Income Fund et al.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions --Investment funds and their manager exempted from the dealer registration requirement for certain limited trading activities to be carried out by these parties in connection with rights offerings by the investment funds -- The limited trading activities involve: i) the forwarding of a rights offering prospectus, and the distribution of rights to acquire securities of the fund, to existing holders of fund securities, and ii) and the subsequent distribution of securities to holders of these rights, upon their exercise of the rights, through an appropriately registered dealer.
Applicable Legislative Provisions
Securities Act, R.S.O., c. S.5, as am., ss. 25(1) and 74(1).
Multilateral Instrument 11-102 Passport System, s. 4.7(1).
National Instrument 45-106 Prospectus and Registration Exemptions, ss. 2.1, 3.1, 3.42 and 8.5.
February 11, 2011
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
FIRST ASSET PIPES & POWER INCOME FUND
(FA PIPES), FIRST ASSET ENERGY & RESOURCE
FUND (FA ENERGY) AND FIRST ASSET
INVESTMENT MANAGEMENT INC. (THE MANAGER)
(COLLECTIVELY, THE FILERS)
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) exempting the Filers from the dealer registration requirement in the Legislation in respect of the following:
I. certain trades (the FA Pipes Rights Offering Activities) to be carried out by the Manager, on behalf of FA Pipes, in connection with a proposed distribution (the FA Pipes Rights Offering) of rights (the FA Pipes Rights) to acquire trust units of FA Pipes (the Trust Units), to be made in Ontario and each of the Passport Jurisdictions (as defined below) pursuant to a rights offering prospectus (the FA Pipes Rights Offering Prospectus); and
II. certain trades (the FA Energy Rights Offering Activities) to be carried out by the Manager, on behalf of FA Energy, in connection with a proposed distribution (the FA Energy Rights Offering) of rights (the FA Energy Rights) to acquire Series I limited partnership interests in FA Energy (the Partnership Units), to be made in Ontario and each of the Passport Jurisdictions (as defined below) pursuant to a rights offering prospectus (the FA Energy Rights Offering Prospectus).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
1. the Ontario Securities Commission is the principal regulator for this application; and
2. each 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (collectively, the Passport Jurisdictions).
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:
1. FA Pipes is a closed-end investment trust established under the laws of the Province of Ontario. FA Pipes is a reporting issuer in Ontario and each of the Passport Jurisdictions and is not in default of the securities legislation in any jurisdiction.
2. FA Energy is a limited partnership established under the law of the Province of Ontario. FA Energy is a reporting issuer in Ontario and each of the Passport Jurisdictions and is not in default of the securities legislation in any jurisdiction.
3. The Manager acts as the investment fund manager for FA Pipes and FA Energy. The Manager is registered as an investment fund manager in the Province of Ontario.
4. The head office of each of the Filers is located in Toronto, Ontario.
5. Neither FA Pipes nor FA Energy are considered to be a mutual fund under the applicable securities legislation of the provinces and territories of Canada.
6. The authorized capital of FA Pipes consists of an unlimited number of Trust Units and the authorized capital of FA Energy consists of an unlimited number of Partnership Units. The Trust Units and Partnership Units are each listed and posted for trading on the Toronto Stock Exchange (TSX).
7. FA Pipes and FA Energy are subject to certain investment restrictions that, among other things, limit the equity securities and other securities that they may acquire for their respective investment portfolios.
8. The investment objectives of FA Pipes are to provide unitholders with the benefits of high monthly cash distributions together with the opportunity for capital appreciation by investing in an actively managed portfolio of issuers that derive their income from the distribution of certain oil, gas or natural gas, as well as those issuers that service and support such industries.
9. The investment objectives of FA Energy are to achieve long-term growth, primarily through capital appreciation but also through investment in income generating assets, including units of income trusts and securities of businesses active in, or providing service and/or support to businesses active in, the exploration, production, transportation or distribution of all forms of energy and natural resources.
10. FA Pipes filed a final long form prospectus dated January 27, 2005, under the securities legislation of Ontario and each of the Passport Jurisdictions for the initial issuance of Trust Units. On September 28, 2006, FA Pipes issued additional Trust Units pursuant to a rights offering circular dated August 15, 2006. On July 23, 2009 and July 23, 2010, FA Pipes issued additional Trust Units pursuant to two short form warrant offering prospectuses dated February 18, 2009 and February 10, 2010, respectively.
11. FA Energy filed a final long form prospectus dated September 30, 1996, under the securities legislation of Ontario and each of the Passport Jurisdictions, for the initial issuance of Partnership Units. On October 4, 2007, FA Energy issued additional Partnership Units in connection with its merger with First Asset Energy & Resource Income and Growth Fund. On January 4, 2008, FA Energy issued additional Partnership Units pursuant to a rights offering circular dated November 13, 2007. On July 23, 2009 and June 25, 2010, FA Energy issued additional Partnership Units pursuant to two short form warrant offering prospectuses dated February 18, 2009 and January 15, 2010, respectively.
12. FA Pipes and FA Energy do not engage in a continuous distribution of their securities.
13. In connection with the FA Pipes Rights Offering, FA Pipes filed a preliminary short form prospectus dated February 4, 2011 under the securities legislation of Ontario and each of the Passport Jurisdictions. A receipt was issued for the prospectus dated February 4, 2011.
14. In connection with the FA Energy Rights Offering, FA Energy filed a preliminary short form prospectus dated February 4, 2011, under the securities legislation of Ontario and each of the Passport Jurisdictions. A receipt was issued for the prospectus dated February 4, 2011.
15. Under the FA Pipes Rights Offering, each holder of Trust Units, as at a specified record date, will be entitled to receive, for no consideration, one FA Pipes Right for each Trust Unit held by the holder. Three FA Pipes Rights entitle the holder to subscribe for one Trust Unit upon payment to FA Pipes of a subscription price, to be specified in the FA Pipes Rights Offering Prospectus, prior to the expiry of the FA Pipes Rights. Holders of FA Pipes Rights in Canada are permitted to sell or transfer their FA Pipes Rights instead of exercising their FA Pipes Rights to subscribe for Trust Units. Holders of FA Pipes Rights who exercise their FA Pipes Rights may subscribe pro rata for additional Trust Units pursuant to an additional subscription privilege. The term of the FA Pipes Rights is expected to be less than 6 months.
16. Under the FA Energy Rights Offering, each holder of Partnership Units, as at a specified record date, will be entitled to receive, for no consideration, one FA Energy Right for each Partnership Unit held by the holder. Three FA Energy Rights entitle the holder to subscribe for one Partnership Unit upon payment to FA Energy of a subscription price, to be specified in the FA Energy Rights Offering Prospectus, prior to the expiry of the FA Energy Rights. Holders of FA Energy Rights in Canada are permitted to sell or transfer their FA Energy Rights instead of exercising their FA Energy Rights to subscribe for Partnership Units. Holders of FA Energy Rights who exercise their FA Energy Rights may subscribe pro rata for additional Energy Units pursuant to an additional subscription privilege. The term of the FA Energy Rights is expected to be less than 6 months.
17. FA Pipes has applied to list on the TSX the FA Pipes Rights to be distributed under the FA Pipes Rights Offering, including the Trust Units issuable upon the exercise thereof.
18. FA Energy has applied to list on the TSX the FA Energy Rights to be distributed under the FA Energy Rights Offering, including the Partnership Units issuable upon the exercise thereof.
19. The FA Pipes Rights Offering Activities will consist of:
(a) the distribution of the FA Pipes Rights Offering Prospectus and the issuance of FA Pipes Rights to holders of Trust Units (as at the record date specified in the FA Pipes Rights Offering Prospectus), after the FA Pipes Rights Offering Prospectus has been filed under the securities legislation of Ontario and each of the Passport Jurisdictions; and
(b) the distribution of Trust Units to holders of the FA Pipes Rights, upon the exercise of the FA Pipes Rights by the holders, through a registered dealer that is registered in a category that permits the registered dealer to make this distribution.
20. The FA Energy Rights Offering Activities will consist of:
(a) the distribution of the FA Energy Rights Offering Prospectus and the issuance of FA Energy Rights to holders of Partnership Units (as at the record date specified in the FA Energy Rights Offering Prospectus), after the FA Energy Rights Offering Prospectus has been filed under the securities legislation of Ontario and each of the Passport Jurisdictions; and
(b) the distribution of Partnership Units to holders of the FA Energy Rights, upon the exercise of the FA Energy Rights by the holders, through a registered dealer that is registered in a category that permits the registered dealer to make this distribution.
21. FA Pipes and FA Energy are in the business of trading by virtue of their portfolio investing and trading activities. As a result, their capital raising activities, including the FA Pipes Rights Offering Activities and FA Energy Rights Offering Activities, would require the Filers to register as a dealer in the absence of this decision (or another available exemption from the dealer registration requirement).
22. Section 8.5 of NI 45-106 provides that, after March 26, 2010, the exemptions from the dealer registration requirements set out in sections 3.1 [Rights offering] and section 3.42 [Conversion, exchange, or exercise] of NI 45-106 no longer apply.
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:
A. FA Pipes, and the Manager acting on behalf of FA Pipes, are not subject to the dealer registration requirement in respect of the FA Pipes Rights Offering Activities; and
B. FA Energy, and the Manager acting on behalf of FA Energy, are not subject to the dealer registration requirement in respect of the FA Energy Rights Offering Activities.