Headnote
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 its website, and to provide it to securityholders upon request. Flow-through limited partnerships have a short lifespan and do not have a readily available secondary market.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, sections 9.2, 10.3, 10.4 and 17.1
February 9, 2009
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
TDK 2008 Flow-Through Limited Partnership (the Partnership)
and
First Asset Investment Management Inc. (First Asset)
(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 First Asset 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 Partnerships) 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 Partnerships (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 (collectively, Requested Relief)
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 pursuant to the provisions of the Limited Partnerships Act (Ontario) on December 5, 2007.
On January 18, 2008, the Partnership filed a final prospectus relating to its initial public offering in each of the provinces of Canada and became a reporting issuer in all of the provinces of Canada where the concept of “reporting issuer” exists. Any Future Partnership will be a reporting issuer in some or all of the provinces of Canada.
TDK General Partner Inc. is the general partner (the General Partner) of the Partnership. The General Partner has retained First Asset to provide management, administrative and other services to the Partnership. The General Partner is an affiliate of First Asset.
First Asset is a promoter and manager of the Partnership and it or its affiliates will be the promoter of the Future Partnerships. As a promoter and manager of the Partnership, First Asset provides or will cause to be provided all of the administrative services required by the Partnership Filers.
The principal office address and the registered office address of the Filers are located in Toronto, Ontario.
The Partnership was formed, and any future partnership will be formed, to invest in certain common shares (Flow-Through Shares) of companies that operate, as their principal business, in any of the oil and gas, mining, energy production, pulp or paper, or forestry development industries or in related resource industries (Resource Issuers) pursuant to agreements (Investment Agreements) between the Partnership and the Resource Issuer. Under the terms of each Investment Agreement, the Partnership will subscribe for Flow-Through Shares of the Resource Issuer and the Resource Issuer will agree to incur and renounce to the 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 Partnership.
Prior to July 1, 2010, 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 that the Partnership will transfer its assets to TDK Resource Fund Inc., an open-end mutual fund corporation managed by an affiliate of First Asset, 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 Partnerships are not, and will not be, operating businesses. Rather, each Partnersip 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 Partnerships 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 Partnerships through Flow-Through Shares.
The units of the Partnerships (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 Partnership in order to obtain the desired tax deduction.
It is, and will be, a term of the partnership agreement governing the Partnerships that the manager or general partner of the of Partnership has, and will have, the authority to manage, control, administer and operate the business and affairs of Partnerships, including the authority to take all measures necessary or appropriate for the business, or ancillary thereto, and to ensure that the Partnerships comply with all necessary reporting and administrative requirements. Under its general authority, the manager or general partner may apply on behalf of the Partnerships for relief.
Each of the Limited Partners of the Partnerships has, or will be expected to be, by subscribing for units of the Partnerships, 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 Partnerships, 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 Partnerships would not be of any benefit to the Limited Partners and may impose a material financial burden on the Partnership. Upon the occurrence of any material change to a Partnership, Limited Partners would receive all relevant information from the material change reports the Partnership is required to file in the Jurisdictions.
As a result of the implementation of NI 81-106, investors purchasing Units of the Partnerships were, or will be, provided with a prospectus containing written policies on how the Flow-Through Shares or other securities held by the Partnership 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 a Partnership Filer be voted in a manner most consistent with the economic interests of the Limited Partners of the Partnership Filer.
Given a Partnership's 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 Partnership exercised or failed to exercise its proxy voting rights, as the Partnership 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 Partnerships.
The Filers are of the view that the Requested Relief is not against the public interest, is in the best interests of the Partnerships and their Limited Partners and represents the business judgment of responsible persons uninfluenced by considerations other than the best interest of the Partnerships 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 Requested Relief is granted.
“Darren McKall”
Darren McKall, Assistant Manager
Investment Funds
Ontario Securities Commission