Mutual Reliance Review System for Exemptive Relief Applications -- Exemptive relief granted to an exchange traded mutual fund from certain mutual fund requirements and restrictions on: borrowing, calculation and payment of redemptions, preparation of compliance reports, and record date for payment of distributions - Since investors will generally buy and sell shares through the TSX, requirements intended principally for conventional mutual funds in continuous distribution are largely inapplicable - Requested relief would not be prejudicial to investors - National Instrument 81-102 - Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.6(a), 10.3, 10.4(1), 12.1(1), 14.1, 19.1.
November 28, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,
PRINCE EDWARD ISLAND, NOVA SCOTIA,
NEWFOUNDLAND AND LABRADOR,
NORTHWEST TERRITORIES, YUKON AND NUNAVUT
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
DIVERSICAPITAL GLOBAL DIVIDEND SPLIT CORP.
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") that exempts the Filer from the following requirements of National Instrument 81-102 -- Mutual Funds ("NI 81-102") in connection with the Class A Shares and the Preferred Shares (as defined below) to be issued by the Filer:
(a) section 2.6(a), which prohibits a mutual fund from borrowing cash or providing a security interest over its portfolio assets subject to certain exemptions;
(b) section 10.3, which requires that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the net asset value ("NAV") of a security of that class, or series of class, next determined after the receipt by the mutual fund of the order;
(c) subsection 10.4(1), which requires that a mutual fund shall pay the redemption price for securities that are the subject of a redemption order within three business days after the date of calculation of the NAV per security used in establishing the redemption price;
(d) subsection 12.1(1), which requires a mutual fund that does not have a principal distributor to complete and file a compliance report, and accompanying letter of the auditor, in the form and within the time period mandated by subsection 12.1(1); and
(e) section 14.1, which requires that the record date for determining the right of securityholders of a mutual fund to receive a dividend or distribution by the mutual fund shall be calculated in accordance with section 14.1.
Under the Mutual Reliance Review System ("MRRS") 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.
Defined terms contained in National Instrument 14-101 - Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. The Filer is a mutual fund corporation established under the laws of Ontario. The Filer's promoter, manager, investment counsel and portfolio manager is Goodman & Company, Investment Counsel Ltd. (the "Manager"). The head office of the Manager is located in the province of Ontario.
2. The Filer will make an offering (the "Offering") to the public, on a best efforts basis, of Class A shares (the "Class A Shares") and Class A preferred shares, series 1 (the "Preferred Shares") (collectively, the "Shares") in each province and territory of Canada. A unit will consist of one Class A Share and one Preferred Share (a "Unit").
3. The Shares are expected to be listed and posted for trading on the Toronto Stock Exchange (the "TSX"). An application requesting conditional listing approval has been made by the Filer to the TSX.
4. The Offering of the Shares by the Filer is a one-time offering and the Filer will not continuously distribute the Shares.
5. A preliminary prospectus of the Filer dated November 1, 2007 (the "Preliminary Prospectus") has been filed with the securities regulatory authorities in each of the Jurisdictions.
6. The Filer's objectives in respect of the Class A Shares are: (i) to provide holders of Class A Shares with regular monthly cash distributions in an amount initially targeted to be 6.00% per annum on the NAV of the Class A Shares; and (ii) to provide holders of Class A Shares with the opportunity for leveraged growth in NAV and distributions per Class A Share.
7. The Filer's objectives in respect of the Preferred Shares are: (i) to provide holders of Preferred Shares with fixed cumulative preferential quarterly cash distributions in the amount of $0.13125 per Preferred Share ($0.525 per year) representing a yield on the issue price of the Preferred Shares of 5.25% per annum; and (ii) to return the issue price of $10.00 per Preferred Share to holders of Preferred Shares at the time of redemption of such shares on December 30, 2014 (the "Redemption Date").
8. The record date for holders of Class A Shares and holders of Preferred Shares that are entitled to receive distributions will be determined in accordance with the requirements of the TSX.
9. The net proceeds from the Offering will be invested in an actively managed, globally-diversified portfolio comprised primarily of dividend-paying equity securities of issuers that the Manager believes are trading at a discount to their intrinsic value and have strong cash flows and the ability to grow their dividends.
10. The Filer may establish a credit facility that it may use for working capital purposes. The Filer expects that the maximum amount it borrows thereunder will be limited to 5% of its NAV. The Filer may pledge the securities in its portfolio as collateral for such amounts.
11. The Shares may be surrendered for retraction at any time and will be retracted on a monthly basis on the last business day of a month (excluding December 2014) (a "Valuation Date"), provided such Shares are surrendered for retraction not less than 10 business days prior to the Valuation Date.
12. Shareholders also have an annual retraction right under which they may concurrently retract an equal number of Class A Shares and Preferred Shares on the December Valuation Date of each year, commencing on the December 2008 Valuation Date. The Shares must be surrendered for retraction at least 10 business days prior to a December Valuation Date.
13. Holders of Class A Shares also have a December 2014 retraction right under which they may retract Class A Shares on the Redemption Date. Such shareholders must surrender their Class A Shares for retraction not less than 45 days prior to the Redemption Date.
14. The retraction payments for Shares surrendered for retraction on a Valuation Date or Class A Shares surrendered for retraction on the Redemption Date will be calculated based on the NAV per Unit of the Filer on the applicable Valuation Date or the Redemption Date, as the case may be, in the manner described in the Preliminary Prospectus. The Filer will make payment for any Shares retracted on or before the tenth business day of the following month (the "Retraction Payment Date").
15. As retraction requests may be made at any time during the month and are subject to a cut-off date (10 business days prior to the Valuation Date), and as the NAV per Unit of the Filer will be calculated once each week, retractions may not be implemented at a price equal to the NAV per Unit next determined after receipt of the retraction request.
16. Shares must be surrendered for retraction to the Filer through participants ("CDS Participants") in the book-based system of CDS Clearing and Depository Services Inc. ("CDS") and the Filer's registrar and transfer agent. The Filer than arranges for the aggregate amount of the retraction payments for such Shares so retracted to be provided to CDS for distribution to the CDS Participants on behalf of shareholders who have retracted their Shares.
17. The Preferred Shares will be redeemed by the Filer on the Redemption Date and the Filer intends to issue a new series of Class A preferred shares at that time in order to maintain an equal number of Class A Shares and preferred shares outstanding. However, if the Filer is not able to issue a new series of Class A preferred shares on terms acceptable to it or, as a result of retractions of Class A Shares on the Redemption Date the Manager is of the view that it is no longer economically feasible to keep the Class A Shares outstanding, the Filer has the right to redeem on the Redemption Date all Class A Shares then outstanding.
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 an exemption is granted from the following requirements of NI 81-102:
(a) section 2.6(a) - to enable the Filer to obtain a credit facility for working capital purposes and provide a security interest over its assets, as stated in paragraph 10 above, so long as the outstanding amount of any such borrowings of the Filer does not exceed 5% of the net assets of the Filer taken at market value at the time of the borrowing;
(b) section 10.3 - to permit the Filer to calculate the retraction price for the Shares in the manner described in the Preliminary Prospectus and on the applicable Valuation Date or the Redemption Date, as the case may be;
(c) subsection 10.4(1) - to permit the Filer to pay the retraction price for the Shares on the Retraction Payment Date;
(d) subsection 12.1(1) - to relieve the Filer from the requirement to file the prescribed compliance reports; and
(e) section 14.1 - to relieve the Filer from the requirement relating to the record date for payment of dividends or other distributions, provided that it complies with the applicable requirements of the TSX.