Securities Law & Instruments

Headnote

Pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, the funds and their manager are exempted from the dealer registration requirement for certain limited trading activities to be carried out by these parties in connection with warrant offerings by the funds, as the limited trading activities involve: i) the forwarding of short form prospectuses and the distribution of warrants to acquire units to existing holders of units and ii) the subsequent distribution of units to existing holders of warrants, upon their exercise of the warrants, through an appropriately registered dealer.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).

Multilateral Instrument 11-102 Passport System, s. 4.7(1).

National Instrument 45-106 Prospectus and Registration Exemptions, ss. 2.1, 3.1, 3.42, 8.5.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.5.

April 25, 2014

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 NORTH AMERICAN REIT INCOME FUND (NRF), NORTH AMERICAN PREFERRED SHARE FUND (NPF), SENIOR SECURED FLOATING RATE LOAN FUND (FRL) (collectively, the Funds), AND PROPEL CAPITAL CORPORATION (the Manager) (collectively with the Funds, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filers from the dealer registration requirement in the Legislation in respect of the following:

i. certain trades (the NRF Warrant Offering Activities) to be carried out by the Manager, on behalf of NRF, in connection with a proposed offering (the NRF Warrant Offering) of warrants (theNRF Warrants) to acquire units (the NRF Units) of NRF, to be made pursuant to a short-form (final) prospectus (the NRF Warrant Prospectus);

ii. certain trades (the NPF Warrant Offering Activities) to be carried out by the Manager, on behalf of NPF, in connection with a proposed offering (the NPF Warrant Offering) of warrants (the NPF Warrants) to acquire units (the NPF Units) of NPF, to be made pursuant to a short-form (final) prospectus (the NPF Warrant Prospectus); and

iii. certain trades (the FRL Class A Warrant Offering Activities) to be carried out by the Manager, on behalf of FRL, in connection with a proposed offering (the FRL Class A Warrant Offering) of warrants (the FRL Class A Warrants) to acquire Class A Units (the FRL Class A Units) of FRL, to be made pursuant to a short-form (final) prospectus (the FRL Class A Warrant Prospectus);

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

1. the Ontario Securities Commission is the principal regulator for this application; and

2. each Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filer in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, the Northwest Territories and Nunavut (collectively, the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 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:

1. Each of the Funds is a trust established by a declaration of trust under the laws of the province of Ontario.

2. The head office of each of the Filers is located in Toronto, Ontario.

3. The Manager is the manager and promoter of the Funds.

4. The Manager was appointed manager for each of the Funds and performs management and administrative services for each of the Funds pursuant to a management agreement between the Manager and the Fund, as applicable.

5. The Funds are reporting issuers in each of the provinces and territories of Canada and none is in default of securities legislation in any jurisdiction.

6. Each of the Funds is subject to certain investment restrictions that among other things, limit the securities that may be acquired by the investment portfolio which the applicable Fund owns.

7. Each of the Funds is not considered to be a mutual fund under securities legislation of the provinces and territories of Canada and none of the Funds is, or has been, in continuous distribution.

8. Each of the Funds' initial public offerings were conducted through the full service investment dealer channel and their units were issued and are held in the book based system of CDS Clearing and Depositary Services (CDS).

NRF

9. The authorized capital of NRF consists of an unlimited number of transferable, redeemable NRF Units of a single class, each of which represents an equal undivided interest in the net assets of NRF. The NRF Units are listed and posted for trading on the Toronto Stock Exchange (the TSX).

10. The investment objectives of NRF are to provide holders of NRF Units with stable monthly cash distributions and the opportunity for capital appreciation.

11. NRF's portfolio consists primarily of listed equity securities of real estate issuers and to a lesser extent issuers principally engaged in the real estate industry in Canada and the United States.

NPF

12. The authorized capital of NPF consists of an unlimited number of transferable, redeemable NPF Units of a single class, each of which represents an equal, undivided interest in the net assets of NPF. The NPF Units are listed and posted for trading on the TSX.

13. The investment objectives of NPF are to provide holders of NPF Units with stable monthly cash distributions and preservation of capital.

14. NPF's portfolio consists principally of Canadian and U.S. preferred shares.

FRL

15. The authorized capital of FRL consists of an unlimited number of classes of transferable, redeemable units, each of which represents an equal, undivided interest in the net assets of FRL attributable to that class. Class A Units and Class U Units are the only issued and outstanding classes of FRL. The FRL Class A Units are listed and posted for trading on the TSX.

16. The investment objectives of FRL are to provide holders of FRL Units with stable monthly cash distributions, preservation of capital and increased returns in the event that short-term interest rates rise.

17. FRL's portfolio consists primarily of first lien senior secured floating rate corporate loans of U.S. borrowers rated "B-" or higher by Standard & Poor's or "B3" or higher by Moody's Investors Service, Inc.

Warrant Offerings

18. In connection with the NRF Warrant Offering, NRF has filed a preliminary short form prospectus under the securities legislation of Ontario and each of the Passport Jurisdictions. Under the NRF Warrant Offering, each holder of NRF Units, as at a specified record date, will be entitled to receive, for no consideration, one NRF Warrant for each NRF Unit held by such holder.

19. Holders of NRF Warrants will be entitled, upon the exercise of such NRF Warrants, to subscribe for NRF Units, pursuant to subscription privileges provided for in the NRF Warrants, at a subscription price to be specified in the NRF Warrant Prospectus. Two NRF Warrants will entitle the holder to subscribe for one NRF Unit under a basic subscription privilege. Holders of NRF Warrants who exercise NRF Warrants under the basic subscription privilege may also subscribe, pro rata, for additional NRF Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The term for the exercise of NRF Warrants (including both the basic subscription privilege and the additional subscription privilege) will not exceed six months.

20. NRF intends to apply to list the NRF Warrants, to be distributed under the NRF Warrant Prospectus, on the TSX.

21. The NRF Warrant Offering Activities will consist of:

a. the distribution of the NRF Warrant Prospectus and the issuance of NRF Warrants to the holders of NRF Units (as at the record date specified in the NRF Warrant Prospectus), after the NRF Warrant Prospectus has been filed, and receipts obtained, under the securities legislation of Ontario and each of the Passport Jurisdictions; and

b. the distribution of NRF Units to holders of NRF Warrants, upon the exercise of such NRF Warrants by the holder, through a registered dealer that is registered in a category that permits the registered dealer to make such distribution.

22. In connection with the NPF Warrant Offering, NPF has filed a preliminary short form prospectus under the securities legislation of Ontario and each of the Passport Jurisdictions. Under the NPF Warrant Offering, each holder of NPF Units, as at a specified record date, will be entitled to receive, for no consideration, one NPF Warrant for each NPF Unit held by such holder.

23. Holders of NPF Warrants will be entitled, upon the exercise of such NPF Warrants, to subscribe for NPF Units, pursuant to subscription privileges provided for in the NPF Warrants, at a subscription price to be specified in the NPF Warrant Prospectus. Two NPF Warrants will entitle the holder to subscribe for one NPF Unit under a basic subscription privilege. Holders of NPF Warrants who exercise NPF Warrants under the basic subscription privilege may also subscribe, pro rata, for additional NPF Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The term for the exercise of NPF Warrants (including both the basic subscription privilege and the additional subscription privilege) will not exceed six months.

24. NPF intends to apply to list the NPF Warrants, to be distributed under the NPF Warrant Prospectus, on the TSX.

25. The NPF Warrant Offering Activities will consist of:

a. the distribution of the NPF Warrant Prospectus and the issuance of NPF Warrants to the holders of NPF Units (as at the record date specified in the NPF Warrant Prospectus), after the NPF Warrant Prospectus has been filed, and receipts obtained, under the securities legislation of Ontario and each of the Passport Jurisdictions; and

b. the distribution of NPF Units to holders of NPF Warrants, upon the exercise of such NPF Warrants by the holder, through a registered dealer that is registered in a category that permits the registered dealer to make such distribution.

26. In connection with the FRL Class A Warrant Offering, FRL has filed a preliminary short form prospectus under the securities legislation of Ontario and each of the Passport Jurisdictions. Under the FRL Class A Warrant Offering, each holder of FRL Class A Units, as at a specified record date, will be entitled to receive, for no consideration, one FRL Class A Warrant for each FRL Class A Unit held by such holder.

27. Holders of FRL Class A Warrants will be entitled, upon the exercise of such FRL Class A Warrants, to subscribe for FRL Class A Units, pursuant to subscription privileges provided for in the FRL Class A Warrants, at a subscription price to be specified in the FRL Class A Warrant Prospectus. Two FRL Class A Warrants will entitle the holder to subscribe for one FRL Class A Unit under a basic subscription privilege. Holders of FRL Class A Warrants who exercise FRL Class A Warrants under the basic subscription privilege may also subscribe, pro rata, for additional FRL Class A Units that are not subscribed for by other holders under the basic subscription privilege, pursuant to the terms of an additional subscription privilege. The term for the exercise of FRL Class A Warrants (including both the basic subscription privilege and the additional subscription privilege) will not exceed six months.

28. FRL intends to apply to list the FRL Class A Warrants, to be distributed under the FRL Class A Warrant Prospectus, on the TSX.

29. The FRL Class A Warrant Offering Activities will consist of:

a. the distribution of the FRL Class A Warrant Prospectus and the issuance of FRL Class A Warrants to the holders of FRL Class A Units (as at the record date specified in the FRL Class A Warrant Prospectus), after the FRL Class A Warrant Prospectus has been filed, and receipts obtained, under the securities legislation of Ontario and each of the Passport Jurisdictions; and

b. the distribution of FRL Class A Units to holders of FRL Class A Warrants, upon the exercise of such FRL Class A Warrants by the holder, through a registered dealer that is registered in a category that permits the registered dealer to make such distribution.

30. The Funds are in the business of trading by virtue of their portfolio investing and trading activities. As a result, their capital raising activities, including their respective NRF Warrant Offering Activities, NPF Warrant Offering Activities or FRL Class A Warrant Offering Activities, would require each of the Filers to register as a dealer in the absence of this decision (or another available exemption from the dealer registration requirement).

31. Section 8.5 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides that the exemptions from the dealer registration requirements set out in section 3.1 [Rights offering] and section 3.42 [Conversion, exchange, or exercise] of NI 45-106 no longer apply.

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:

A. NRF, and the Manager acting on behalf of NRF, are not subject to the dealer registration requirement in respect of the NRF Warrant Offering Activities;

B. NPF, and the Manager acting on behalf of NPF, are not subject to the dealer registration requirement in respect of the NPF Warrant Offering Activities; and

C. FRL, and the Manager acting on behalf of FRL, are not subject to the dealer registration requirement in respect of the FRL Class A Warrant Offering Activities.

"Vern Krishna"
Commissioner
Ontario Securities Commission
 
"Judith Robertson"
Commissioner
Ontario Securities Commission