Headnote NP 11-203 – Exemption granted to flow-through limited partnerships from the requirements in National Instrument 81-106 Investment Fund Continuous Disclosure to file an annual information form. 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 and 17.1.
November 8, 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 GOODMAN & COMPANY, INVESTMENT COUNSEL INC. (the “Manager”)
AND
IN THE MATTER OF
CMP 2013 RESOURCE LIMITED PARTNERSHIP
(the "Partnership Filer")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Partnership Filer and other partnerships established by the Manager from time to time that are identical to the Partnership Filer in all respects which are material to this decision (collectively with the Partnership Filer and the Manager, the “Filers”) for a decision under the securities legislation of the Jurisdiction of the principal regulator (“Legislation”) for an exemption from (the “Requested Relief”) the requirement in section 9.2 of National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") to prepare and file an annual information form (the "AIF").
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 is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the “Jurisdictions”).
Interpretation
Terms defined in National Instrument 14-101 – Definitions 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 principal office of the Filers is located at 1 Adelaide Street East, Suite 2100, Toronto, Ontario, M5C 2V9.
The Manager is the manager of the Partnership Filer.
The Manager and the Partnership Filer are not in default of securities legislation in any Jurisdiction.
The Manager is a corporation existing under the laws of the Province of Ontario, is registered in the categories of exempt market dealer and portfolio manager with the securities commissions in each province and territory in Canada and in the category of investment fund manager with the securities commissions in Ontario, Quebec and Newfoundland and Labrador.
It is a term of the partnership agreement governing the Partnership Filer that the general partner of the Partnership Filer is responsible for controlling the business of the Partnership Filer. Each general partner has delegated the direction of all day-to-day business operations and affairs to the Manager, including the authority to take all measures necessary or appropriate for the business, or ancillary thereto, and to ensure that the Partnership Filer complies with all necessary reporting and administrative requirements.
By subscribing for limited partnership units of a Partnership Filer (the "Units"), the limited partners of the Partnership Filer (the "Limited Partners") have agreed to the irrevocable power of attorney contained in the limited partnership agreement of such Partnership Filer and have thereby, in effect, consented to the granting of the Requested Relief.
Since its formation, the Partnership Filer’s activities have been limited to (i) completing the issue of Units under its prospectus, (ii) investing its available funds in accordance with its investment objectives, and (iii) incurring expenses as described in its prospectus.
The Partnership Filer was formed to invest in certain flow-through shares ("Flow-Through Shares") and other securities of companies, limited partnerships, or other issuers whose principal business is mining exploration, development, and/or production, oil and gas exploration, development, and/or production, certain energy production, pulp or paper development, processing, and/or production, forestry development and/or production, or a related resource business, such as a pipeline or service company or utility ("Resource Companies") pursuant to agreements ("Resource Agreements") between the Partnership Filer and the relevant Resource Company. Under the terms of each Resource Agreement, the Partnership Filer subscribes for Flow-Through Shares of the Resource Company and the Resource Company agrees to incur and renounce to such Partnership Filer 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 such Partnership Filer.
The Partnership Filer is a limited partnership formed pursuant to the Limited Partnerships Act (Ontario) (the “Act”) on October 16, 2012. On January 29, 2013 it became a reporting issuer in each of the Jurisdictions. On or about July 1, 2015, it will be dissolved and the Limited Partners will receive their pro rata share of its net assets. The general partner of the CMP 2013 Resource Limited Partnership is CMP 2013 Corporation, an Ontario company that was incorporated on October 16, 2012.
It is currently intended that, following the Partnership Filer’s dissolution, the Partnership Filer will transfer its assets to Dynamic Managed Portfolios Ltd. (“DMP Ltd.”), an open-ended mutual fund corporation, on a tax-deferred basis in exchange for DMP Resource Class shares (“DMP Shares”), a class of shares authorized by DMP Ltd., which constitutes a separate mutual fund. Upon dissolution of a Partnership Filer, the DMP Shares will be distributed to the Limited Partners of such Partnership Filer, pro rata, on a tax-deferred basis.
The Partnership Filer is not an operating business. Rather, the Partnership Filer is a short-term special purpose vehicle which will be dissolved within approximately 2 years of its formation. The primary investment purpose of the Partnership Filer 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 Companies renounce resource exploration and development expenditures to the Partnership Filer through the Flow-Through Shares.
Based on the dissolution dates noted above, and the comparable structure of each future Partnership Filer, each Partnership Filer will, while reporting issuers, pass two financial years ending December 31, but will not be in existence as of the third December 31 financial year end.
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 of the Partnership Filer. Generally, Units are not transferred by Limited Partners since Limited Partners must be holders of the Units on the last day of each fiscal year of a Partnership Filer in order to obtain the desired tax deduction.
Other partnerships established by the Manager from time to time that may rely on the Requested Relief, if it is granted, will be identical to the Partnership Filer in all material respects and, in particular: (i) will have similar investment objectives, (ii) will have similarly limited permitted activities, (iii) will have similar time horizons, (iv) will provide a feature to convert into an open-ended mutual fund, and (v) will not be listed or quoted on any stock exchange or market.
Given the limited range of business activities to be conducted by the Partnership Filer, 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 Partnership Filer will not be of any benefit to the Limited Partners and may impose a material financial burden on the Partnership Filer. Upon the occurrence of any material change to the Partnership Filer, Limited Partners would receive all relevant information from the material change reports the Partnership Filer is required to file in each of the Jurisdictions.
The Manager is of the view the Requested Relief is not against the public interest, is in the best interests of the Partnership Filer and their Limited Partners and represents the business judgment of the Manager uninfluenced by considerations other than the best interests of the Partnership Filer and its 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.
‘Raymond Chan’
Manager, Investment Funds Branch
Ontario Securities Commission