NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from National Instrument 81-106 Investment Fund Continuous Disclosure granted to permit a fund that uses specified derivatives to calculate its NAV weekly and not on a daily basis, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 14.2(3)(b), 17.1.
December 7, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
T. BOONE PICKENS ENERGY FUND
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from section 14.2(3)(b) of National Instrument 81-106 -- Investment Fund Continuous Disclosure (NI 81-106), which requires that the net asset value of an investment fund that uses specified derivatives (as defined in National Instrument 81-102 -- Mutual Funds) be calculated at least once every business day (the Exemption 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 Filer has provided notice that Section 4.7(1) of Multinational Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.
Terms defined in National Instrument 14-101 - Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
(a) Unit means a Class A Unit, a Class F Unit or a Class U Unit of the Filer.
(b) Warrant means a Class A Warrant, a Class F Warrant or a Class U Warrant of the Filer.
This decision is based on the following facts represented by the Filer:
1. The Filer is an investment fund to be established under the laws of the Province of Ontario.
2. BMO Nesbitt Burns Inc. (the Administrator), is the administrator of the Filer and is responsible for the management and administration of the Filer. The head office of the Administrator is located at 1 First Canadian Place, 54th Floor, Toronto, Ontario, M5X 1H3.
3. The Filer filed a preliminary prospectus dated November 5, 2009 and an amended and restated preliminary prospectus dated November 13, 2009 (the Preliminary Prospectus) with respect to a public offering of Class A Combined Units, Class F Combined Units and Class U Combined Units of the Filer in each of the provinces and territories of Canada. Each Combined Unit of a class consists of one Unit and one Warrant. The offerings are one-time offerings and the Filer does not intend to be in continuous distribution.
4. The Filer is authorized to issue an unlimited number of Class A Units, Class F Units, Class I units and Class U Units. The Class I units are an institutional class of units that may be offered on a prospectus-exempt basis. No Class I units are presently outstanding.
5. The Filer has been created to provide investors with the opportunity for long-term capital growth by providing access to the energy-related investment strategies of TBP Investments Management, LLC (the Portfolio Manager). The Portfolio Manager and its management team are led by Mr. T. Boone Pickens, who brings to the Filer years of energy-related investment experience.
6. The Filer will invest the net proceeds of the offerings in an actively managed portfolio (the Portfolio) consisting primarily of equity and commodity-related investments within the energy and energy-related sectors. Portfolio investments will include traditional or conventional energy sector investments but may also include alternative energy investments including non-traditional uses for natural gas and renewable energy that are consistent with energy themes and policies espoused by the Portfolio Manager.
7. The Filer will generally acquire commodity exposure through liquid futures and option contracts that trade on the New York Mercantile Exchange or over-the-counter.
8. The Filer may have significant U.S. dollar exposure. The Filer intends to hedge approximately 100% of the value of the Portfolio's U.S. dollar currency exposure back to the Canadian dollar in respect of Class A Units and Class F Units, both of which are denominated in Canadian dollars. The Filer will not hedge its currency exposure in respect of Class U Units, which are denominated in U.S. dollars.
9. The Filer may also purchase or write equity options, and/or other financial contracts in respect of exchange-listed securities. The net obligations of the Filer under such instruments may not exceed 30% of the net asset value (NAV) of the Filer.
10. Although the Filer will be a mutual fund trust for the purposes of the Income Tax Act (Canada), it will not be a mutual fund for the purposes of Canadian securities legislation.
11. The operations of the Filer will differ in some respects from those of a conventional mutual fund, including the following:
(a) unlike a conventional mutual fund, in which the fund's securities are offered to the public on a continuous basis, the Filer does not intend to continuously offer its Units once it is out of primary distribution; and
(b) the Class A Units and the Class U Units are expected to be listed and posted for trading on the Toronto Stock Exchange (TSX). This is unlike securities of a conventional mutual fund where there is normally no such market and where, as a result, holders of securities who wish to liquidate their holdings must cause the fund to redeem them. In the present case, because the Class A Units and the Class U Units are expected to be listed for trading on the TSX, holders of Class A Units or Class U Units will not have to rely solely on the redemption features of such Units to provide liquidity for their investment.
12. The Class F Units will not be listed on a stock exchange but will be convertible into Class A Units. It is expected that liquidity for the Class F Units will be obtained by means of conversion into Class A Units and the sale of those Class A Units through the facilities of the TSX.
13. In addition, a holder of Class U Units may convert Class U Units into Class A Units and a holder of Class A Units may convert Class A Units into Class U Units. Units will be converted on a basis determined by reference to the NAV of the exchanged Units. During the period in which Warrants are outstanding, a Unit of a class may only be converted concurrently with a Warrant of the same class. Such Warrants will be converted on a one-for-one basis.
14. The Class A Combined Units, Class A Units, Class A Warrants, Class U Combined Units, Class U Units and Class U Warrants have received conditional listing approval from the TSX.
15. Commencing in 2011, Units may be redeemed on the last business day of June of each year (but must be surrendered for redemption on a business day during the period from the first day of June until the last business day prior to the 11th day of June in each year), at the option of the holder for a redemption price per Unit equal to 100% of the NAV per Unit of the applicable class, less any costs and expenses incurred by the Filer to fund such redemption.
16. In addition to such annual redemption right, Units may be redeemed on the last business day of each month, other than in the month of June of the year 2011 or any year thereafter (but must be surrendered for redemption on a business day during the period from the first day of a month until the last business day prior to the 11th day of such month), at the option of the holder at a price determined by reference to the market price of the Units.
17. The Filer will calculate and publish a basic and, as required, a diluted NAV per Unit of each class of Units on the Friday of each week (or if a Friday is not a business day, the immediately following business day).
18. The Preliminary Prospectus discloses, and the final prospectus of the Filer will disclose, that the basic and diluted NAV per Unit of each class of Units will be calculated and made available at no cost on a weekly basis on a website established for such purpose.
19. The Filer is not in default of any of its obligations under securities legislation in any of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Yukon, Northwest Territories or Nunavut.
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 provided that:
(a) the Class A Units are listed on the TSX; and
(b) the Filer calculates the NAV per Unit of each class of Units at least weekly.