Headnote
MI 11-102 and NP 11-203 - Exemptions granted to flow-through limited partnerships from the requirements in National Instrument 81-106 Investment Fund Continuous Disclosure to file an annual information form, to maintain and prepare an annual proxy voting record, to post the proxy voting record on their website, and to provide it to securityholders upon request – Flow-though limited partnerships are short-term investment vehicles formed solely to invest its available funds in flow-through shares of resource issuers – The securities of flow-through limited partnerships are not redeemable and there is no readily available secondary market for the securities – A flow-through limited partnership’s other continuous disclosure documents will provide all relevant information necessary for investors to understand the its investment objectives and strategies, financial position and future plans.
Rules Cited
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 9.2, 10.3, 10.4 and 17.1
April 24, 2008
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 Mavrix Québec 2007-II Flow Through LP (the Partnership) and
Mavrix Fund Management Inc. (Mavrix)
(collectively, the Filers)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers on behalf of the Partnership and each future limited partnership promoted by Mavrix or its affiliates that is identical to the Partnership in all respects which are material to this decision (Future Partnerships, and together with the Partnership, the LPs) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the requirement to:
(a) prepare and file an annual information form (the AIF) pursuant to Section 9.2 of National Instrument 81-106 – Investment Funds Continuous Disclosure (NI 81-106) for each financial year;
(b) maintain a proxy voting record (the Proxy Voting Record) pursuant to Section 10.3 of NI 81-106; and
(c) prepare and make available to limited partners of the LPs (the Limited Partners) the Proxy Voting Record on an annual basis for the period ending on June 30 of each year pursuant to Section 10.4 of NI 81-106 (Exemption 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island (the 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:
The Partnership was formed, and Future Partnerships will be formed, to invest in certain common shares (Flow-Through Shares) of companies that operate, as their principal business, in any of the energy, precious metals, base metals, minerals, mining, oil and gas or other resource-based industries (Resource Issuers) pursuant to agreements (Investment Agreements) between the relevant partnership and the Resource Issuer. Under the terms of each Investment Agreement, the relevant partnership will subscribe for Flow-Through Shares of the Resource Issuer and the Resource Issuer will agree to incur and renounce to the relevant partnership, in amounts equal to the subscription price of the Flow-Through Shares, expenditures in respect of resource exploration and development that qualify as Canadian exploration expense and that may be renounced as Canadian exploration expense to the relevant partnership.
The Partnership was formed on July 25, 2007. On August 24, 2007, the Partnership became a reporting issuer in Ontario and Québec. Any Future Partnerships will be reporting issuers in some or all of the provinces of Canada.
On or about November 30, 2009, the Partnership will be dissolved and the Limited Partners of the Partnership will receive their pro rata share of the net assets of the Partnership. It is the current intention of the general partner of the Partnership that the Partnership will transfer its assets to an open-end mutual fund corporation managed by Mavrix, in exchange for shares of a class of shares of such mutual fund corporation. Upon dissolution, the Limited Partners would receive their pro rata share of the shares of that mutual fund. Any Future Partnership will be terminated approximately two years after it is formed on the same basis as the Partnership.
The LPs are not, and will not be, operating businesses. Rather, each LP is, or will be, a short-term special purpose vehicle that will be dissolved within approximately two years of its formation. The primary investment purpose of the LPs is not to achieve capital appreciation, although this is a secondary benefit, but rather to obtain for the Limited Partners the significant tax benefits that accrue when Resource Issuers renounce resource exploration and development expenditures to the LPs through Flow-Through Shares.
The units of the LPs (the Units) are not, and will not be, listed or quoted for trading on any stock exchange or market. The Units are not redeemable by the Limited Partners. Generally, Units are not transferred by Limited Partners, since Limited Partners must be holder of the Units on the last day of each fiscal year of the LP in order to obtain the desired tax deduction.
It is, and will be, a term of the partnership agreement governing the LPs that the general partner of the of LP has, and will have, the authority to manage, control, administer and operate the business and affairs of LPs, including the authority to take all measures necessary or appropriate for the business, or ancillary thereto, and to ensure that the LPs comply with all necessary reporting and administrative requirements. Under its general authority, the general partner may apply on behalf of the LPs for relief.
Each of the Limited Partners of the LPs has, or will be expected to be, by subscribing for units of the LPs, agreed to the irrevocable power of attorney contained in the partnership agreement and has thereby, in effect, consented to the making of this Application.
Given the limited range of business activities to be conducted by the LPs, the short duration of their existence and the nature of the investment of the Limited Partners, the preparation and distribution of an AIF by the LPs would not be of any benefit to the Limited Partners and may impose a material financial burden on the LPs. Upon the occurrence of any material change to the LPs, Limited Partners would receive all relevant information from the material change reports the LPs are required to file in the Jurisdictions.
As a result of the implementation of NI 81-106, investors purchasing Units of the LPs were, or will be, provided with a prospectus containing written policies on how the Flow-Through Shares or other securities held by the LPs are voted (the Proxy Voting Policies), and had, or will have, the opportunity to review the Proxy Voting Policies before deciding whether to invest in Units.
Generally, the Proxy Voting Policies require that the securities of companies held by the LPs be voted in a manner most consistent with the economic interests of the Limited Partners of the LPs.
Given the LPs’ short lifespan, the production of a Proxy Voting Record would provide Limited Partners with very little opportunity for recourse if they disagreed with the manner in which the LPs exercised or failed to exercise its proxy voting rights, as the LPs would likely be dissolved by the time any potential change could materialize.
Preparing and making available to Limited Partners a Proxy Voting Record will not be of any benefit to Limited Partners and may impose a material financial burden on the LPs.
The Filers are of the view that the Exemption Sought is not against the public interest, is in the best interests of the LPs and their Limited Partners and represents the business judgment of responsible persons uninfluenced by considerations other than the best interest of the LPs and their Limited Partners.
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 Exemption Sought is granted.
Vera Nunes
Vera Nunes
Assistant Manager
Investment Funds Branch
Ontario Securities Commission