Alberta Focused Income & Growth Fund - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- investment fund using specified derivatives exempted from the requirement to calculate its net asset value on a daily basis, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 14.2(3)(b) and s. 17.1.
April 7, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUÉBEC, NOVA SCOTIA, NEW BRUNSWICK,
NEWFOUNDLAND AND LABRADOR AND YUKON TERRITORY
(THE "JURISDICTIONS")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
ALBERTA FOCUSED INCOME & GROWTH FUND
(THE "FUND")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from Middlefield Focused Management Limited (the "Manager") on behalf of the Fund for a decision under the securities legislation of the Jurisdictions (the "Legislation") for an exemption from the requirement contained in section 14.2(3)(b) of National Instrument 81-106 -- Investment Fund Continuous Disclosure ("NI 81-106"), which requires an investment fund that uses specified derivatives (as that term is defined in National Instrument 81-102 -- Mutual Funds) to calculate net asset value ("NAV") at least once every business day (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.
Representations
This decision is based on the following facts represented by the Fund:
1. The Manager is a corporation incorporated under the laws of Alberta. It intends to establish the Fund pursuant to a declaration of trust in March or April, 2006. The head office of the Fund will be located in Toronto, Ontario.
2. The Fund's investment objectives will be: (i) to pay monthly distributions to holders ("Unitholders") of Units ("Units") and (ii) to enhance the initial value of the Units offered by the Fund through capital appreciation of the Fund's investment portfolio (the "Portfolio").
3. The Fund will make an offering of Units in the Jurisdictions and in Prince Edward Island and has filed a preliminary prospectus dated February 27, 2006 in such jurisdictions. The Fund does not intend to continuously offer Units once the Fund is out of primary distribution.
4. The Fund will invest the net proceeds of its proposed offering (and any funds borrowed pursuant to a credit facility) in a broadly diversified portfolio of income producing equity securities initially consisting primarily of income trust securities and supplemented by dividend paying common stocks.
5. The Fund will have the ability to invest in or utilize derivatives from time to time for hedging purposes consistent with its investment strategy in accordance with National Instrument 81-102 (as if it were applicable) or as otherwise permitted by the Canadian securities regulators from time to time. The Fund also will have the ability from time to time to engage in writing covered call options on securities held in the Portfolio and in writing cash covered put options. However, the Fund will not invest in or use derivatives if it will result in the Fund failing to comply with its investment restrictions regarding its status as a "unit trust" or "mutual fund trust" as defined in the Income Tax Act (Canada).
6. The Manager will be the trustee and manager of the Fund and will be responsible for providing or arranging for the provision of administrative services to the Fund.
7. Middlefield Capital Corporation (the "Advisor") will act as investment advisor to the Fund and it is expected that Groppe, Long & Littell will be appointed as special advisor to the Advisor.
8. The Units will be redeemable only on October 31 of each year commencing in 2007 (each a "Valuation Date"), at an amount that is calculated with reference to the NAV.
9. The Fund is not considered to be a "mutual fund" because the Unitholders are not entitled to receive on demand an amount computed by reference to the value of a proportionate interest in the whole or in part of the net assets of the Fund as contemplated in the definition of "mutual fund" in the Legislation. Accordingly, the Fund will be a "non-redeemable investment fund" as defined in NI 81-106.
10. Unitholders that have redeemed their Units will receive payment on or before the 15th business day following the relevant Valuation Date.
11. The Fund intends to calculate the NAV per Unit on a weekly basis on Thursday of each week (or if Thursday is not a business day, then on the immediately preceding business day), on each Valuation Date and on any other date on which the Manager elects in its discretion to calculate the NAV per Unit.
12. The prospectus of the Fund will disclose that the NAV per Unit of the Fund will be made available to the public by the Manager through publication in the financial press and on the internet at www.middlefield.com.
13. The Units are expected to be listed and posted for trading on the Toronto Stock Exchange (the "TSX") and the Manager has applied to the TSX to so list the Units. Since the Units will be listed for trading on the TSX, Unitholders will not have to rely solely on the redemption feature of the Units in order to provide liquidity for their investment.
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 provided that the prospectus of the Fund discloses:
(a) that the NAV calculation is available to the public upon request; and
(b) a toll-free telephone number or website which the public can access for this purpose;
for so long as:
(c) the Units are listed on the TSX; and
(d) the Fund calculates its NAV at least weekly.