NP 11-203 -- approval granted for the change of control of the manager of certain funds -- section 5.5(2) of NI 81-102 requires the approval of the securities regulatory authority or regulator before the manager of a mutual fund is changed, unless the new manager is an affiliate of the current manager -- National Instrument 81-102 Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds , ss. 5.5(2), 5.7.
November 12, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
CROWN HILL FUND
1471723 ALBERTA LTD.
(1471723 and, collectively with CH Fund, the Filers)
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) for approval of the change of control of the manager of the Funds (as defined below) resulting from the Transaction (as defined below) in accordance with section 5.5(2) of National Instrument 81-102 Mutual Funds (NI 81-102) (the Requested Approval).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission (the ASC) is the principal regulator for this application;
(b) the Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in the jurisdictions of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon; and
(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision unless otherwise defined.
This decision is based on the following facts represented by the Filers:
1. Prior to June 3, 2009, CGF MFC Management Ltd. (the Former Administrator) was the manager for each of CGF Income & Equity Class, CGF Money Market Class, CGF Fixed Income Class, CGF Canadian Heavyweight Equity Class, CGF US Heavyweight Equity Class, CGF Global Heavyweight Equity Class, CGF International Heavyweight Equity Class, CGF Canadian Resource Class, CGF Value Fund Class and CGF Income Fund Class (collectively, the Funds) of CGF Mutual Funds Corporation (CGF MFC) pursuant to a master administrative services agreement dated November 18, 2008 (the Administrative Services Agreement) between the Former Administrator and CGF MFC.
2. Prior to June 3, 2009, the Former Administrator transferred the Administrative Services Agreement to its affiliate, 1471723. As a result, 1471723 became the manager of the Funds.
3. Neither 1471723 nor the Funds are in default of securities legislation in any of the Canadian provinces or territories.
4. The Funds became reporting issuers on December 19, 2008, the date on which a receipt for the final simplified prospectus in respect of each of the Funds was issued by the ASC, as principal regulator, on its own behalf and evidencing the receipt of the securities regulatory authority or regulator in each of the Canadian provinces or territories.
5. CH Fund is a reporting issuer in each of the provinces of Canada and its units are listed on the Toronto Stock Exchange under the symbol MYT.UN.
6. Crown Hill Capital Corporation (CH Manager) is the trustee and manager of CH Fund. As at the date of this decision, the directors and officers of CH Manager are Thomas I.A. Allen, Edward Ling, Terry A. Jackson and Wayne Pushka.
7. CH Fund formed a limited partnership, CH Fund Administration LP (CH LP), on May 20, 2009 and CH LP in turn formed a wholly-owned subsidiary, 1472278 Alberta Ltd., on June 2, 2009 (1472278). The general partner of the CH LP is 2206687 Ontario Inc. (CH LP GP). As at the date of this decision, the sole director and officer of CH LP GP is Wayne Pushka and the directors and officers of 1472278 are Edward Ling, Michael Burns, Wayne Pushka and N. Gary VanNest.
Change of Control Transaction
8. On June 3, 2009, CH Fund indirectly acquired, through 1472278, control over all the material assets held by the former administrators of each of Citadel Premium Income Fund, Citadel S-1 Income Trust Fund, Citadel Stable S-1 Income Fund, Citadel SMaRT Fund, Citadel Hytes Fund, Citadel Diversified Investment Trust, Series S-1 Income Fund, Energy Plus Income Trust, Equal Weight Plus Fund, Sustainable Production Energy Trust, Financial Preferred Securities Corporation, CGF MFC and CGF Resources 2008 Flow-Through LP (collectively, the Citadel Funds), including, without limitation, the administrative services agreements relating to all of the Citadel Funds except for the Administrative Services Agreement regarding CGF MFC (collectively, the Transaction).
9. Pending the Requested Approval, 1471723 continues to have the management responsibilities under the Administrative Services Agreement. It has delegated all of its rights and obligations under the Administrative Services Agreement to 1472278.
10. Following receipt of the Requested Approval, 1471723 has indicated that it will immediately assign the Administrative Services Agreement to its affiliate, 1472278. As a result, 1472278 will become the manager of the Funds.
11. After the closing of the Transaction, the Ontario Securities Commission (OSC) expressed concern that CH Fund, as a closed-end investment fund, acquired a beneficial interest in the management of the Citadel Funds through the Transaction. This matter remains under the ongoing review of the OSC.
12. Following the Requested Approval, the Filers and 1472278 intend to pursue ways of divesting CH Fund of its indirect shareholdings in CGF MFC and divesting 1472278 of the Administrative Services Agreement in respect of the Funds. This may include the sale of these assets to a third party purchaser. Prior to the implementation of any such purchase, 1472278 will obtain or give, as the case may be, all required approvals and notices under NI 81-102.
13. At the time of the Transaction, the shares of each of CGF Money Market Class, CGF Fixed Income Class, CGF Canadian Resource Class, CGF Value Fund Class and CGF Income Fund Class were not offered for sale to the public and none of these five funds have any assets. 1471723 and 1472278 do not intend to open these five funds for sale to the public. Instead, it is intended that these five funds will cease to be reporting issuers.
14. Under the terms of the purchase agreement that implemented the Transaction, it was agreed that each of CGF Canadian Heavyweight Equity Class, CGF US Heavyweight Equity Class, CGF International Equity Class and CGF Global Heavyweight Equity Class would be wound up. Following receipt of the Requested Approval and the transfer of the Administrative Services Agreement to 1472278, 1472278 will take steps to wind up these funds in accordance with applicable securities legislation.
15. On July 3, 2009, Shaunessy Investment Counsel Inc., the portfolio advisor of, among other Funds, CGF Income & Equity Class, resigned effective as of December 18, 2009. The replacement portfolio advisor for this Fund will be Crown Hill Asset Management Inc.
16. Except as contemplated in paragraph 12, the change of control of the manager will not materially affect the operation and administration of CGF Income & Equity Class, the remaining Fund, following the steps described in paragraphs 13 and 14 above. Other than the portfolio advisor, which will change on or before December 18, 2009, all of the current service providers are expected to continue in their current roles. The systems, back office, fund accounting and other administrative functions are expected to continue to be operated in substantially the same manner as before the Transaction.
17. The Former Administrator had agreed not to charge CGF Income and Equity Class any management fees until the end of June 2009. In accordance with that arrangement, CGF Income and Equity Class has paid the management fees disclosed in the simplified prospectus of the Funds since July 1, 2009. The management fees and operating expenses of the other Funds will not change as a result of the Transaction.
18. The change of control of 1471723 will have no negative consequences on its ability, as manager, to comply with all applicable regulatory requirements or its ability to satisfy its obligations to the Funds and their shareholders.
19. To the extent that any change is made following the completion of the Transaction that constitutes a material change within the meaning of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), amendments will be made to the simplified prospectus and annual information form of the Funds, as appropriate, and all other applicable securities law requirements will be met.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Requested Approval is granted.