First Asset Funds Inc. et al. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Closed-end investment trusts exempt from prospectus requirements in connection with the sale of units redeemed or repurchased from existing security holders pursuant to market repurchase programs -- Relief subject to conditions that the trusts will only sell units through the markets where the units are listed, that the trusts comply with insider trading restrictions and that the trusts meet the conditions in the exemption for the resale of securities by a control person.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 53, 74(1).

National Instrument 45-102 Resale of Securities, s. 2.8.

April 11, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

ONTARIO, NOVA SCOTIA, NEW BRUNSWICK,

PRINCE EDWARD ISLAND,

NEWFOUNDLAND AND LABRADOR, YUKON,

NORTHWEST TERRITORIES AND

NUNAVUT

(the "Jurisdictions")

AND IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND IN THE MATTER OF

FIRST ASSET FUNDS INC.

FIRST ASSET/BLACKROCK NORTH AMERICAN DIVIDEND ACHIEVERS TRUST

FIRST ASSET DIVERSIFIED CONVERTIBLE DEBENTURE FUND

FIRST ASSET ENERGY & RESOURCE FUND

FIRST ASSET GLOBAL INFRASTRUCTURE FUND

FIRST ASSET INCOME & GROWTH FUND

FIRST ASSET PIPES & POWER INCOME FUND

FIRST ASSET POWERGEN FUND

FIRST ASSET YIELD OPPORTUNITY TRUST

SPLIT REIT OPPORTUNITY TRUST

FIRST ASSET REIT INCOME FUND

FAPOWER FUND

TRIAX DIVERSIFIED HIGH-YIELD TRUST

UTILITY SPLIT TRUST

(collectively, the "Filers" or "FA Funds")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker" and, collectively, the "Decision Makers") in each of the Jurisdictions has received an application (the "Application") from First Asset Funds Inc. and its affiliates ("First Asset") and the FA Funds (First Asset Funds Inc. and FA Funds each a "Filer" and, collectively, the "Filers") for a decision (the "Requested Relief") under the securities legislation of the Jurisdictions (the "Legislation"), that the requirement contained in the Legislation to file and obtain a receipt for a preliminary prospectus and a final prospectus (the "Prospectus Requirements") shall not apply to the distribution of units of the FA Funds (the "Units") which (a) have been repurchased by the FA Funds pursuant to each of (i) the FA Funds' mandatory purchase program, or (ii) the FA Funds' discretionary purchase program, or (b) have been tendered for redemption by the holders of Units ("Unitholders").

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. Each of the FA Funds is an unincorporated closed-end investment trust established under the laws of the Province of Ontario.

2. Each of the FA Funds filed a final long form prospectus with the securities regulatory authorities in each of the Jurisdictions and became a reporting issuer or the equivalent thereof in the Jurisdictions upon obtaining a receipt for their respective prospectus. As of the date hereof, none of the FA Funds is in default of any requirements under the Legislation.

3. None of the FA Funds are considered to be a "mutual fund" as defined in the Legislation because the Unitholders are not entitled to receive on demand an amount computed by reference to the value of a proportionate interest in the whole or in part of the net assets of each of the FA Funds as contemplated in the definition of "mutual fund" in the Legislation.

4. The Units of each of the FA Funds are listed and posted for trading on the Toronto Stock Exchange (the "TSX").

5. For each of the FA Funds, each whole Unit respectively is entitled to one vote at all meetings of Unitholders and is entitled to participate equally with all other such Units with respect to any and all distributions made by such FA Fund.

6. First Asset or an affiliate (the "Manager"), is the manager and/or trustee of each of the FA Funds.

Mandatory Purchase Program

7. In order to enhance liquidity and to provide market support for the Units, pursuant to their respective constating documents and the terms and conditions that attach to the Units, the FA Funds shall be obligated to purchase (the "Mandatory Purchase Programs") any Units offered in the market at the then prevailing market prices if, at any time as at the close of business in Toronto, Ontario on the immediately preceding business day, the prices at which Units are then offered for sale is less than 95% of the net asset value of such FA Fund ("Net Asset Value") per Unit, provided that:

(a) the maximum number of Units that such FA Fund shall purchase pursuant to its Mandatory Purchase Program in any calendar quarter will be 1.25% of the number of respective Units outstanding at the beginning of each such period; and

(b) each such FA Fund shall not be required to purchase Units pursuant to its Mandatory Purchase Program if:

(i) the Manager reasonably believes that such FA Fund would be required to make an additional distribution in respect of the year to its Unitholders of record on December 31 of such year in order that the FA Fund will generally not be liable to pay income tax after the making of such purchase;

(ii) in the opinion of the Manager, such FA Fund lacks the cash, debt capacity or other resources to make such purchases; or

(iii) in the opinion of the Manager, such purchases would adversely affect the ongoing activities of such FA Fund or its remaining Unitholders.

Discretionary Purchase Program

8. In addition, the respective constating documents provide that each of the FA Funds, subject to applicable regulatory requirements and limitations, shall have the right, but not the obligation, exercisable in its sole discretion, at any time, to purchase outstanding Units in the market at prevailing market prices (the "Discretionary Purchase Programs" and together with the Mandatory Purchase Programs, the "Programs"). Such discretionary purchases may be made through the facilities and under the rules of any exchange or market on which the Units are listed (including the TSX) or as otherwise permitted by applicable securities laws.

Monthly Redemptions

9. In order to enhance liquidity for the Units, pursuant to their respective constating documents the FA Funds are obligated to redeem any Units tendered by a Unitholder pursuant to the Unitholder's monthly redemption right (the "Monthly Redemption") for an amount, if any, equal to the lesser of:

(i) 95% of the average trading price of the Units during a period of trading days (10 or 15 days depending on a particular FA Fund) preceding the applicable date the Units may be redeemed; and

(ii) 100% of the closing market price on the applicable date that the Units may be redeemed, and with respect to certain FA Funds, less applicable costs incurred to fund the redemption.

Annual Redemptions

10. In addition, the respective constating documents provide that each of the FA Funds are obligated to redeem any Units tendered by a Unitholder pursuant to the Unitholder's annual redemption right (the "Annual Redemption" and together with the Monthly Redemption, the "Redemptions") for an amount, if any, equal to the net asset value per Unit (or per Unit of a particular series) as of the applicable date the Units may be redeemed, less any costs of funding the redemption (including brokerage fees, commissions and redemption fees).

Resale of Repurchased or Redeemed Units

11. Purchases of Units made by the FA Funds under the Programs are exempt from the issuer bid requirements of the Legislation pursuant to exemptions contained therein.

12. The FA Funds desire to sell through one or more securities dealers, Units that have been repurchased by the FA Funds pursuant to the Programs ("Repurchased Units") or any Units redeemed pursuant to the Redemptions ("Redeemed Units"), subject to obtaining all necessary regulatory approvals.

13. In order to effect sales of Repurchased Units or Redeemed Units by the FA Funds, each of the FA Funds intends to sell, in its sole discretion and at its option, any Repurchased Units or Redeemed Units primarily through one or more securities dealers and through the facilities of the TSX (or such other exchange on which the Units are then listed).

14. All Repurchased Units or Redeemed Units will be held by the each of the FA Funds for a period of 4 months after the repurchase thereof by such FA Fund (the "Holding Period"), prior to the resale thereof.

15. Repurchased Units or Redeemed Units will not be sold at a price which is less than the volume weighted average trading price of the Units during the five business days prior to the date at which the sale occurs.

16. Repurchased Units or Redeemed Units that the respective FA Funds do not resell within 12 months after the Holding Period (or 16 months after the date of repurchase) will be cancelled by such FA Funds.

17. Prospective purchasers who subsequently acquire Repurchased Units or Redeemed Units will have equal access to all of the continuous disclosure documents of the FA Funds, which will be filed on SEDAR, commencing with their respective prospectuses.

18. The Legislation provides that a trade by or on behalf of an issuer in previously issued securities of that issuer that have been purchased or redeemed by that issuer is a distribution subject to the Prospectus Requirements. Consequently, in the absence of the Requested Relief, the sale by the FA Funds of the Repurchased Units is a distribution that is subject to the Prospectus Requirements.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the FA Funds' trades of Repurchased Units pursuant to the Programs, and the FA Funds' trades of Redeemed Units pursuant to the Redemptions, shall not be subject to the Prospectus Requirements of the Legislation provided that:

(a) the Repurchased Units and the Redeemed Units are sold by the respective FA Funds through the facilities of and in accordance with the regulations and policies of the TSX or the market on which the respective Units are then listed;

(b) the FA Funds comply with the insider trading restrictions imposed by securities legislation with respect to the trades of Repurchased Units and Redeemed Units; and

(c) the FA Funds comply with the conditions of paragraphs 1 through 5 of subsection 2.8(2) of National Instrument 45-102 ("NI 45-102") with respect to the sale of the Repurchased Units and the Redeemed Units.

"David L. Knight"
Commissioner
Ontario Securities Commission
 
"Wendell S. Wigle"
Commissioner
Ontario Securities Commission