Headnote National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions – Relief granted to the Fund to complete the Exchange Offering under its short form prospectus dated October 22, 2012, to receive, in exchange for its securities, securities of another fund managed by the Fund’s manager.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements, s. 13.5(2)(a)
National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.2
November 7, 2012
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 FAIRCOURT GOLD INCOME CORP. (the Fund)
AND
FAIRCOURT ASSET MANAGEMENT INC. (the Manager)
(collectively, 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) granting relief, for the purpose of completing an exchange offering, from the prohibition in Subsection 13.5(2)(a) of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) against a registered adviser knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, from purchasing a security of an issuer in which a responsible person or associate of a responsible person is a partner, officer or director (a Related Issuer) unless this fact is disclosed to the client and the written consent of the client is obtained before the investment is made (the Relief 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 (the Principal Regulator);
(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, 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, MI 11-102, National Instrument 81-107 – Independent Review Committee for Investment Funds (NI 81-107) 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 Filers
1. The Fund is a closed-end investment fund established as a mutual fund corporation under the laws of the Province of Ontario. Its head office is located at Suite 1402, 141 Adelaide Street West, Toronto, Ontario M5H 3L5;
2. The Fund is a reporting issuer in each of the provinces of Canada and is not in default of securities legislation in any jurisdiction;
3. The investment objective of the Fund is to provide security holders with monthly distributions and the opportunity for capital appreciation through investment in a portfolio comprised primarily of common shares of gold companies. In order to generate additional returns and to reduce risk, the Fund employs an option strategy whereby it writes covered call options on securities held in its portfolio and cash secured put options on securities desired to be held in the portfolio;
4. The Manager is the investment fund manager of the Fund. The Manager was incorporated pursuant to the Business Corporations Act (Ontario) on August 23, 2002. The Manager performs management, investment advisory and administrative services for the Fund pursuant to a management agreement. Its head office is located at 141 Adelaide Street West, Suite 1402, Toronto, Ontario, M5H 3L5. The Manager is registered as an Investment Fund Manager, an Exempt Market Dealer and a Portfolio Manager;
5. The Manager is not a reporting issuer in any jurisdiction of Canada and is not in default of securities legislation of any jurisdiction of Canada;
The Offering
6. The Filers propose to undertake an offering (the Exchange Offering) of Class A Shares of the Fund (the Offered Shares) by short form prospectus dated October 22, 2012. The Offered Shares will be issued (a) in exchange for securities (the Exchange Option) of certain eligible issuers (Exchange Eligible Issuers); or (b) in exchange for cash, in each case at the price per Offered Share of $8.45;
7. The number of Offered Shares issuable for each class of security of an Exchange Eligible Issuer (the Exchange Ratio) pursuant to the Exchange Option will be determined by dividing (a) by (b):
(a) the weighted average trading price of such security on the TSX (or such other exchange or market on which such security is then listed) during the period of three consecutive trading days ending on the day the Exchange Option will no longer remain open for acceptance, as adjusted to reflect distributions declared by Exchange Eligible Issuers that will not be received by the Fund,
(b) $8.45;
8. Metals Plus Income Corp. (MPI) is among the Exchange Eligible Issuers whose securities may be accepted by the Fund pursuant to the Exchange Option. Shares of MPI are listed and traded on the TSX;
9. MPI is a closed-end investment fund established as a mutual fund corporation under the laws of the Province of Ontario;
10. The investment objectives of MPI are to provide holders of its shares with (i) monthly distributions and (ii) the opportunity for capital appreciation, through investment in an actively managed portfolio consisting primarily of equity securities of metals and materials companies. In order to generate additional returns and to reduce risk, MPI employs an option strategy whereby it writes covered call options on securities held in its portfolio and cash secured put options on securities desired to be held in the portfolio;
11. MPI’s actively managed portfolio of metals and materials companies includes the equity securities of some gold companies;
12. MPI is a reporting issuer in each of the provinces of Canada and is not in default of securities legislation in any jurisdiction. The head office of MPI is located at Suite 1402, 141 Adelaide Street West, Toronto, Ontario M5H 3L5;
13. The Manager is the investment fund manager of MPI and performs management, investment advisory and administrative services for MPI pursuant to a management agreement;
14. Mr. Charles Taerk serves as President, Chief Executive Officer and Director of MPI, while Mr. Douglas Waterson serves as Chief Financial Officer of MPI;
Restrictions on Investments in Securities of Related Issuers
15. According to Subsection 13.5(2)(a) of NI 31-103, a registered adviser such as the Manager may not knowingly cause an investment portfolio managed by it, including an investment fund for which it acts as an advisor, to purchase the securities of a Related Issuer unless this fact is disclosed to the client and the written consent of the client is obtained before the purchase (the Investment Restriction). As a result of the Investment Restriction, the Manager is prohibited from knowingly causing the Fund to purchase the securities of MPI;
16. National Instrument 81-107 – Independent Review Committee for Investment Funds (NI 81-107) applies to the Fund as it is a reporting issuer. Section 6.2 of NI 81-107 provides the Fund with an exemption (the Exemption) from the Investment Restriction if (i) the investment fund’s independent review committee has approved the investment under Section 5.2(2) of NI 81-107 and (ii) the purchase is made on the exchange on which the securities are listed and traded. However the Exemption cannot apply to the Fund’s acquisition of MPI securities by way of the Exchange Option as the Fund will acquire securities of MPI through the Exchange Option by investors depositing securities of MPI with the Exchange Agent through CDS and not through the facilities of a stock exchange, as required by Section 6.2 of NI 81-107;
17. Accordingly, in the absence of the Requested Relief, the Filers may not knowingly cause the Fund to purchase the securities of MPI pursuant to the Exchange Option, as the purchases will not occur through the facilities of a stock exchange. This is so even though the remaining requirements set out in the Exemption provided by Section 6.2 of NI 81-107 will have been met. More particularly, the Fund’s independent review committee will have approved the investment under Section 5.2(2) of NI 81-107.
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 Relief Sought is granted provided that:
(a) the purchase and holding of MPI securities pursuant to the Exchange Option is consistent with, or is necessary to meet, the investment objective of the Fund;
(b) the Fund’s independent review committee approves the purchase of MPI securities pursuant to the Exchange Option, in accordance with Section 5.2 of NI 81-107, prior to the Fund’s purchase of MPI securities pursuant to the Exchange Option;
(c) the price of the MPI securities acquired by the Fund pursuant to the Exchange Option will be based on the weighted average trading price of MPI on the TSX during the period of three consecutive trading days ending on the day the Exchange Option will no longer remain open for acceptance, as adjusted to reflect distributions declared by MPI that will not be received by the Fund;
(d) holders of MPI securities, who deposit their MPI securities under the Exchange Option, are independent and at arm’s-length from the Fund, MPI and the Manager; and
(e) no later than the 90th day after the end of this financial year, the Fund will file with the applicable securities regulatory authorities the particulars of any MPI securities that were purchased through the Exchange Option pursuant to the Relief Sought.
“Raymond Chan”
Manager, Investment Funds
Ontario Securities Commission