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
March 24, 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 Creststreet 2008 Limited Partnership (the Partnership) and Creststreet Asset Management Limited (the Promoter together with the Partnership, the Filers)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Filers on behalf of the Partnership and any future limited partnership promoted by the Promoter 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 an exemption pursuant to section 17.1 of NI 81-106 from the following disclosure requirements:
(a) to prepare and file an annual information form (the AIF) pursuant to Section 9.2 of NI 81-106 for each financial year;
(b) to maintain a proxy voting record (the Proxy Voting Record) pursuant to Section 10.3 of NI 81-106; and
(c) to 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,
(the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
the Ontario Securities Commission is the principal regulator for this application; and
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 each of the provinces of Canada, other than the province of Ontario, (the Non-Principal Jurisdictions).
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.
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 19, 2007.
Creststreet 2008 General Partner Limited is the general partner of the Partnership (the General Partner). The General Partner was incorporated under the provisions of the Business Corporations Act (Ontario) on December 19, 2007.
The principal office of the Partnership, the General Partner and the Promoter is located at 70 University Avenue, Suite 1450, Toronto, Ontario, M5J 2M4.
Neither the Partnership nor the Promoter is in default of securities legislation of any Jurisdiction.
The Partnership filed a final prospectus relating to its initial public offering in all of the provinces of Canada (the Jurisdictions) on February 15, 2008 and became a reporting issuer, or its equivalent, in each of the Jurisdictions. It is expected that any Future Partnership will be a reporting issuer, or the equivalent, in each of the Jurisdictions.
The Promoter is a promoter of the Partnership and it or its affiliates will be the promoter of any Future Partnership established by the Promoter that invest in Flow-Through Shares (as defined hereinafter).
The Partnership was formed, and any Future Partnerships will be formed, to invest in diversified portfolios of equity securities, comprised principally of flow through shares (Flow-Through Shares) of issuers engaged in oil and gas, mining or renewable energy exploration and development in Canada or that invest in securities of entities engaged in such activities (Resource Issuers) pursuant to agreements (Flow-Through Agreements) between the applicable LP and the relevant Resource Issuer. Under the terms of each Flow-Through Agreement, the relevant LP will subscribe for Flow-Through Shares of the Resource Issuer and the Resource Issuer will agree to incur and renounce to the LP, in amounts equal to the subscription price of the Flow-Through Shares, expenditures in respect of resource exploration and development which qualify as Canadian exploration expense or as Canadian development expense which may be renounced as Canadian exploration expense to the LP.
The Partnership is structured in such a manner that it will be dissolved on or about January 22, 2010 and upon such dissolution 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 an open-ended mutual fund corporation in exchange for shares of a class of shares of such mutual fund corporation. Upon dissolution, the Limited Partners of the Partnership would receive their pro rata share of the shares of that mutual fund.
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 three 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 limited partnership 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 also not redeemable by the Limited Partners. Generally, Units are not transferred by the Limited Partners, since each Limited Partner must be the 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 particular LP has, and will have, the authority to manage, control, administer and operate the business and affairs of the 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. The Promoter provides or will cause to be provided all of the administrative services required by the LPs.
Each of the Limited Partners of the LPs has, or will be expected to have, by subscribing for Units, agreed to the irrevocable power of attorney contained in the partnership agreement and has thereby, in effect, consented to the making of this application.
Since its formation, the Partnership’s activities have been limited to (i) completing the issue of the Units under its prospectus, (ii) investing its available funds in accordance with its investment objective, and (iii) incurring expenses as described in its prospectus. Any Future Partnership will be structured in a similar fashion.
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 a LP, Limited Partners would receive all relevant information from the material change reports the LP is required to file with each of the Jurisdictions.
As a result of the implementation of NI 81-106, investors purchasing Units of the LPs were, or will be, provided 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 a LP be voted in a manner most consistent with the economic interests of the Limited Partners of the LP.
Given a LP’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 LP exercised or failed to exercise its proxy voting rights, as the LP 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 the 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.
“Rhonda Goldberg”
Rhonda Goldberg
Manager, Investment Funds
ONTARIO SECURITIES COMMISSION