U.S. Global Investors Inc. and Galileo Global Equity Advisors Inc., 2013 CanLII 12681

Headnote NP 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval granted for change of control of mutual fund manager under s. 5.5(2) of NI 81-102 – The Filer has no current plans to change the manager of the Funds, or to amalgamate or merge the current manager with any other entity, for the foreseeable future - Change of control will result in 50%, equal ownership of the Manager by two separate parties..

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, sections 5.5(2) and 19.1

March 12, 2013

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

U.S. GLOBAL INVESTORS INC.

AND

IN THE MATTER OF GALILEO GLOBAL EQUITY ADVISORS INC. (the Manager or GGEA)

(collectively, the Filers)

AND

GALILEO HIGH INCOME PLUS FUND and

GALILEO GLOBAL

OPPORTUNITIES FUND

(the Funds)

DECISION

Background

The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval pursuant to subsection 5.5(2) of National Instrument 81-102 Mutual Funds (NI 81-102) of a change of control of the Manager (the Approval 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 Manager has provided notice that section 4.7(1) of Multilateral instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Québec, Saskatchewan, Northwest Territories, Yukon and Nunavut (together with Ontario, the Jurisdictions).

Interpretation

Terms defined 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 Manager and the Funds

1. The Manager is a corporation incorporated under the laws of the Province of Ontario. The Manager’s head office is located in Ontario.

2. The Manager is registered: (a) in Ontario, as an exempt market dealer, portfolio manager and investment fund manager, (b) in Alberta, as a portfolio manager, (c) in Manitoba, as a portfolio manager, (d) in British Columbia, as a portfolio manager, (e) in Nova Scotia, as a portfolio manager, (f) in Québec, as a portfolio manager and exempt market dealer, (g) in New Brunswick, as an exempt market dealer, and (h) in Newfoundland and Labrador, as an exempt market dealer. The Manager is not in default of securities legislation in any of the Jurisdictions.

3. The Manager is the investment fund manager and trustee of Galileo High Income Plus Fund and Galileo Global Opportunities Fund (collectively, the Funds), and provides investment advice and portfolio management services to the Funds.

4. Prior to July 31, 2012, the manager and trustee of the Funds was Galileo Funds Inc. (GFI), a wholly-owned subsidiary of the Manager, and the portfolio adviser of the Funds was GGEA. On July 31, 2012, GGEA amalgamated with its wholly-owned subsidiary, GFI, by way of a short-from vertical amalgamation pursuant to section 177 of the Ontario Business Corporations Act. The amalgamated corporation continued under the name Galileo Global Equity Advisors Inc. (GGEA) and since July 31, 2012, has been the investment fund manager, trustee and portfolio advisor of the Funds. Disclosure pertaining to the amalgamation was provided in the Funds’ Simplified Prospectus and Annual Information Form dated August 24, 2012.

5. The Funds are reporting issuers in the Jurisdictions and are not in default of any of the securities law requirements of those Jurisdictions. The securities of the Funds are qualified for distribution in the Jurisdictions by a simplified prospectus and annual information form.

6. The Funds are marketed and distributed through registered dealers.

The Proposed Acquisition

7. U.S. Global Investors Inc. (U.S. Global) is an investment management firm which is registered in the United States as an investment adviser under the Investment Advisers Act of 1940, as amended. Headquartered in San Antonio, Texas, U.S. Global and its subsidiaries are principally engaged in the business of providing investment advisory, transfer agency and other services to U.S. Global Investors Funds (a family of thirteen SEC registered mutual funds offered for sale in the United States only) as well as other clients. U.S. Global has approximately 70 employees.

8. On January 18, 2013, the Manager, U.S. Global and Michael Waring, the President, Chief Executive Officer, Chief Investment Officer and Chief Compliance Officer of the Manager, entered into a share purchase agreement (the Purchase Agreement) pursuant to which U.S. Global will acquire 500,000 newly issued common shares in the capital of the Manager from treasury (the Transaction). Michael Waring currently holds 500,000 common shares in the capital of the Manager, representing 100% of the issued and outstanding shares in the capital of the Manager. Following the completion of the Transaction, the issued and outstanding shares of the Manager will be owned as follows:

Name of Shareholder

Number of Common Shares

% of Total

Michael Waring

500,000

50%

U.S. Global Investors, Inc.

500,000

50%

TOTAL:

1,000,000

100%

9. The completion of the Transaction is subject to the satisfaction of closing conditions, including regulatory approvals, and is expected to close on or before March 31, 2013 (the Closing Date) following receipt of the regulatory approvals and the expiration of the notice period provided for in section 5.8(1)(a) of NI 81-102.

Proposed Change of Control

10. The Transaction will result in a change of control of the Manager.

11. The current directors of the Manager are Michael Waring and Evelyn Foo. Upon the closing of the Transaction, it is intended that Frank Holmes, who is the Chief Executive Officer and Chief Investment Officer of U.S. Global, and Susan McGee, who is the President and General Counsel of U.S. Global, will also join the board of directors.

12. The current officers of the Manager are Michael Waring (President, Chief Executive Officer, Chief Investment Officer and Chief Compliance Officer) and Evelyn Foo (Chief Financial Officer and Secretary). It is anticipated that the officers of the Manager will remain the same following the closing of the Transaction.

13. Following the closing of the Transaction, the board of directors of the Manager will continue to manage the business and affairs of the Manager. In view of the change of control of the Manager, however, certain material transactions relating to the Manager (for example, amending the Manager’s articles or by-laws, issuance of additional shares, changing the principal business of the Manager, significant corporate acquisitions, divestitures or mergers, etc.) will require the unanimous approval of U.S. Global and Michael Waring in their capacity as equal shareholders of the Manager. The basis for such approval will be set out in a written agreement between the Manager, U.S. Global and Michael Waring and the relevant decisions will be documented by way of resolutions of the directors and/or shareholders, as applicable.

14. The Transaction will benefit the Manager by providing additional research capabilities, additional marketing resources, and additional capital which is expected to facilitate investment in new products and infrastructure and to increase the financial stability of the Manager.

15. A press release describing the Transaction was issued by the Manager on January 18, 2013 and filed under SEDAR Project No. 02007393. A material change report describing the Transaction was also issued by the Manager on January 18, 2013 and filed on SEDAR. An amendment to the Funds’ Simplified Prospectus and Annual Information Form dated August 24, 2012 describing the Transaction was filed on SEDAR on January 18, 2013 and receipted on February 13, 2013.

16. Securityholder notice describing the Transaction and the resulting change of control was posted on SEDAR under SEDAR Project No. 02010199 and was sent to securityholders of the Funds on January 28, 2013, pursuant to section 5.8(1)(a) of NI 81-102.

17. A notice regarding the change of control of the Manager was submitted to the registration branch of the Ontario Securities Commission on February 1, 2013 pursuant to section 11.10 of National Instrument 31-103 Registration Requirements and Exemptions.

18. In respect of the impact of the proposed change of control of the Manager on the management and administration of the Funds:

(a) The Filers have confirmed that there are no current plans:

(i) to make any substantive changes to how the Manager operates or manages the Funds;

(ii) to amalgamate or merge the Manager with another investment fund manager,

(iii) immediately following the Closing Date, to change the manager of the Funds to U.S. Global or an affiliate of U.S. Global; and

(iv) within a foreseeable period of time, to change the Manager to U.S. Global or an affiliate of U.S. Global.

(b) The change of control of the Manager will have no negative consequences on the ability of the Manager to comply with all applicable regulatory requirements or its ability to satisfy its obligations to the Funds.

(c) There is no current intention to change the name of the Manager or the names of the Funds as a result of the Transaction, immediately after the Closing Date.

(d) The Filers currently intend to maintain the Funds as a separately managed fund family with the Manager as the Funds’ investment fund manager and portfolio manager, after the Closing Date.

(e) Following the Closing Date of the Transaction, while Michael Waring will no longer own a controlling interest in the Manager, and the shares of the Manager will be owned by Michael Waring and U.S. Global as to 50% each of the outstanding shares, the Transaction will not result in any material change in how the Manager operates or acts in relation to the Funds. The Transaction will not have a negative impact on the Funds or their securityholders.

(f) There are no current plans to change the Funds’ portfolio manager or the individual portfolio managers of the Manager who are responsible for managing the investment portfolios of the Funds, within a foreseeable period of time following the closing of the Transaction.

(g) Following the Transaction, Michael Waring will continue in the role of Chief Investment Officer of the Manager and will continue to have overall responsibility for the investment management activities of the Manager. In addition, the individuals chiefly responsible for the management and administration of the Funds, namely Michael Waring (President, Chief Executive Officer, Chief Investment Officer and Chief Compliance Officer) and Evelyn Foo (Chief Financial Officer and Secretary), will continue in their current capacities. All directors and officers of the Manager following closing of the Transaction will continue to have the requisite integrity and experience to fulfil their roles.

(h) Although the current members of the Funds’ independent review committee (IRC) will automatically cease to be members of the IRC by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds upon the closing of the Transaction, the Manager intends to reappoint them immediately after the Closing Date.

(i) It is not expected that there will be any change to the investment objectives and strategies of the Funds or the expenses that are charged to the Funds as a result of the Transaction.

(j) The proposed Transaction is not expected to adversely impact the financial stability of the Manager or its ability to fulfill its regulatory obligations.

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 Approval Sought is granted.

“Vera Nunes”

Vera Nunes

Manager, Investment Funds Branch

ONTARIO SECURITIES COMMISSION

SEDAR Project No. 2010558