First Asset REIT Income Fund and First Asset Investment Management Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Investment fund and its manager exempted from the dealer registration requirement for certain limited trading activities to be carried out by these parties in connection with rights offering by the investment fund -- 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. 1990, c. S.5, as am., ss. 25(1), 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, 8.5.
November 18, 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 REIT INCOME FUND (FA REIT) AND
FIRST ASSET INVESTMENT MANAGEMENT INC.
(the Manager, together with FA REIT, 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 certain trades (the FA REIT Rights Offering Activities) to be carried out by the Manager, on behalf of FA REIT, in connection with a proposed distribution (the FA REIT Rights Offering) of rights (the FA REIT Rights) to acquire trust units of FA REIT (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 REIT 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 REIT is a closed-end investment trust established under the laws of the Province of Ontario. FA REIT 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. The Manager acts as the investment fund manager for FA REIT. The Manager is registered as an investment fund manager in the Province of Ontario.
3. The head office of each of the Filers is located in Toronto, Ontario.
4. FA REIT is not considered to be a mutual fund under the applicable securities legislation of the provinces of Canada.
5. The authorized capital of FA REIT consists of an unlimited number of Trust Units. The Trust Units are listed for trading on the Toronto Stock Exchange (the TSX).
6. FA REIT is subject to certain investment restrictions that, among other things, limit the equity securities and other securities that may be acquired for its investment portfolio.
7. The investment objectives of FA REIT are to provide holders of Trust Units with the benefits of high monthly cash distributions together with the opportunity for capital appreciation through the active management of a diversified portfolio of real estate investment trusts and real estate corporations that are listed on Canadian stock exchanges.
8. FA REIT filed a final long form prospectus dated October 28, 2004 under the securities legislation of Ontario and each of the Passport Jurisdictions for the initial issuance of Trust Units. On September 29, 2006, FA REIT issued additional Trust Units in connection with its merger with First Asset Equal Weight Small-Cap Fund. FA REIT also completed two rights offerings on February 15, 2007 and May 28, 2008 under which it issued additional Trust Units pursuant to two short form rights offering prospectuses dated January 9, 2007 and April 17, 2008, respectively. On July 28, 2009, FA REIT completed a warrant offering under which it issued additional Trust Units pursuant to a short form warrant offering prospectus dated February 18, 2009.
9. FA REIT does not engage in a continuous distribution of its securities.
10. In connection with the FA REIT Rights Offering, FA REIT filed a preliminary short form prospectus dated November 9, 2011 under the securities legislation of Ontario and each of the Passport Jurisdictions and a receipt was issued.
11. Under the FA REIT Rights Offering, each holder of Trust Units, as at a specified record date, will be entitled to receive, for no consideration, one FA REIT Right for each Trust Unit held by the holder. Three FA REIT Rights entitle the holder to subscribe for one Trust Unit upon payment to FA REIT of a subscription price, to be specified in the FA REIT Rights Offering Prospectus, prior to the expiry of the FA REIT Rights. Holders of FA REIT Rights in Canada are permitted to sell or transfer their FA REIT Rights instead of exercising their FA REIT Rights to subscribe for Trust Units. Holders of FA REIT Rights who exercise their FA REIT Rights may subscribe pro rata for additional Trust Units pursuant to an additional subscription privilege. The term of the FA REIT Rights is expected to be 3 months or less.
12. FA REIT has applied to list on the TSX the FA REIT Rights to be distributed under the FA REIT Rights Offering, including the Trust Units issuable upon the exercise thereof.
13. The FA REIT Rights Offering Activities will consist of:
(a) the distribution of the FA REIT Rights Offering Prospectus and the issuance of FA REIT Rights to holders of Trust Units (as at the record date specified in the FA REIT Rights Offering Prospectus), after the FA REIT Rights Offering Prospectus has been filed under the securities legislation of Ontario and each of the Passport Jurisdictions and a receipt obtained; and
(b) the distribution of Trust Units to holders of the FA REIT Rights, upon the exercise of the FA REIT Rights by the holders, through a registered dealer that is registered in a category that permits the registered dealer to make such a distribution.
14. FA REIT is in the business of trading by virtue of its portfolio investing and trading activities. As a result, its capital raising activities, including the FA REIT 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).
15. 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 FA REIT, and the Manager acting on behalf of FA REIT, are not subject to the dealer registration requirement in respect of the FA REIT Rights Offering Activities.