One time trade of securities between non-redeeemable investment funds to mutual funds in connection with proposed mergers, both advised by the same portfolio manager -- costs of the mergers borne by the manager -- sale of securities exempt from the self-dealing prohibitions in paragraph s.13.5(2)(b)(iii), National Instrument 31-103 -- Registration Requirements and Exemptions.
Applicable Legislative Provisions
National Instrument 31-103 Registration Requirements and Exemptions, s. 13.5(2)(b)(iii), 15.1.
March 10, 2010
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
GOODMAN & COMPANY,
INVESTMENT COUNSEL LTD.
DIVERSIGLOBAL DIVIDEND VALUE FUND,
DIVERSITRUST ENERGY INCOME FUND,
DIVERSITRUST INCOME FUND,
DIVERSITRUST INCOME+ FUND AND
DIVERSIYIELD INCOME FUND
(collectively, the Terminating Funds)
DYNAMIC GLOBAL DIVIDEND VALUE FUND,
DYNAMIC ENERGY INCOME FUND AND
DYNAMIC STRATEGIC YIELD FUND
(collectively, the Continuing Funds, and together
with the Terminating Funds, the Funds)
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 exemptive relief from Section 13.5(2)(b)(iii) of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103), which prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser, in order to effect the mergers of (i) diversiGlobal Dividend Value Fund with Dynamic Global Dividend Value Fund; (ii) diversiTrust Energy Income Fund with Dynamic Energy Income Fund; and (iii) each of diversiTrust Income Fund, diversiTrust Income+ Fund and diversiYield Income Fund with Dynamic Strategic Yield Fund (collectively, the Mergers) (collectively, the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator (the Principal Regulator) for this application; and
(b) the 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 in each of the provinces and territories of Canada, other than the province of Ontario (the Non-Principal Jurisdictions).
Terms defined in MI 11-102 and National Instrument 14-101 -- Definitions have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer intends to merge each Terminating Fund into the applicable Continuing Fund specified above, which will involve the transfer of assets of the Terminating Fund in exchange for series A units (the Series A Units) of the applicable Continuing Fund. Unitholders of each Terminating Fund will receive Series A Units of the applicable Continuing Fund, the value of which are equal to the net asset value (NAV) of the units held by such unitholder in the Terminating Fund.
2. The Filer is a corporation existing under the Business Corporations Act (Ontario) (the OBCA) and is registered as a portfolio manager under the securities legislation of Ontario, Alberta, British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Québec and as a commodity trading manager under the Commodity Futures Act (Ontario).
3. At the time that the Merger steps are completed, the Filer will manage the investment portfolios of each of the Terminating Funds and the Continuing Funds.
4. Each Fund was established pursuant to a declaration of trust under the laws of the Province of Ontario and the Filer is the trustee and manager of each Fund. Accordingly, each Fund is an associate of the Filer.
5. Each Terminating Fund is a "non-redeemable investment fund" as defined in the Legislation and the units of each Terminating Fund are listed on the Toronto Stock Exchange (TSX). Each Continuing Fund is a mutual fund for the purposes of the Legislation.
6. Each Continuing Fund offers its Series A Units and certain other series of units in all of the provinces and territories of Canada on a continuing basis pursuant to a simplified prospectus dated December 23, 2009.
7. The head office of the Filer is located in Ontario.
8. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada (the Canadian Legislation) and are not on the list of defaulting reporting issuers maintained under such securities legislation.
9. Unless an exemption has been obtained, each of the Funds follows the standard investment restrictions and practices established under the Canadian Legislation.
10. The NAV for units of each Terminating Fund (other than diversiTrust Income Fund) and for units of each Continuing Fund is calculated on a daily basis on each day that the TSX is open for trading. The NAV for units of diversiTrust Income Fund is calculated on the last business day of each week, the last business day of each month and any other date on which the Filer, as manager of diversiTrust Income Fund, elects in its discretion.
11. The board of directors of the Filer approved the Mergers on December 8, 2009 and press releases and material change reports in respect of the Mergers were filed on SEDAR in December 2009.
12. As required by National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107), an Independent Review Committee (IRC) has been appointed for the Funds, and the Filer presented the terms of the Mergers to the IRC for a recommendation. The IRC considered the proposed Mergers and provided a positive recommendation to the Filer on the basis that the Mergers would achieve a fair and reasonable result for each of the Funds.
13. Unitholders of each of diversiGlobal Dividend Value Fund, diversiTrust Income Fund and diversiYield Income Fund approved the Merger applicable to such Terminating Fund at special meetings of unitholders held on March 2, 2010, and unitholders of each of diversiTrust Energy Income Fund and diversiTrust Income+ Fund will be asked to approve the Merger applicable to such Terminating Fund at adjourned special meetings of such unitholders scheduled to be held on March 16, 2010 (collectively, the Meetings).
14. In connection with the Meetings, the Filer, as manager of the Terminating Funds, sent to the unitholders of the Terminating Funds a notice of special meetings of unitholders and joint management information circular each dated January 20, 2010 and a related form of proxy (collectively, the Meeting Materials).
15. It is proposed that the Mergers will occur on or about March 26, 2010 (the Merger Date), subject to regulatory and unitholder approvals.
16. Following the Mergers, each Continuing Fund will continue as a publicly offered open-end mutual fund and each Terminating Fund will be wound up and terminated.
17. Unitholders of the Terminating Funds have been provided with tax disclosure about the ramifications of the Mergers in the Meeting Materials.
18. The Mergers of diversiGlobal Dividend Value Fund with Dynamic Global Dividend Value Fund and diversiTrust Energy Income Fund with Dynamic Energy Income Fund will take place on a taxable basis. The Mergers of each of diversiTrust Income Fund, diversiTrust Income+ Fund and diversiYield Income Fund with Dynamic Strategic Yield Fund will take place on a non-taxable basis.
19. The Mergers are expected to take place using the following steps:
(a) Effective as of close of business on March 16, 2010, diversiGlobal Dividend Value Fund, diversiTrust Income Fund and diversiYield Income Fund will be de-listed from the TSX, and effective as of close of business on March 18, 2010, diversiTrust Energy Income Fund and diversiTrust Income+ Fund will be de-listed from the TSX.
(b) On the Merger Date, each Terminating Fund will transfer all of its assets (other than such assets as are sufficient to satisfy its liabilities) to the applicable Continuing Fund with which such Terminating Fund is merging in exchange for Series A Units of such Continuing Fund. Each Terminating Fund will receive Series A Units of the applicable Continuing Fund, the value of which is equal to the NAV of the Terminating Fund transferred to the Continuing Fund, in each case calculated as of the close of business on the Merger Date. Unitholders of record as of the Merger Date will receive a distribution on the Merger Date that would have otherwise been received on March 31, 2010 had the applicable Terminating Fund not been terminated. The Terminating Funds may also make additional distributions.
(c) Immediately thereafter, the Series A Units of the applicable Continuing Fund received by a Terminating Fund will be distributed to unitholders of such Terminating Fund and the unitholder's units of such Terminating Fund will be redeemed and cancelled. Each unitholder of a Terminating Fund will receive Series A Units of the applicable Continuing Fund, the value of which are equal to the NAV of the units of the Terminating Fund previously held by the unitholder as of the close of business on the Merger Date. While the distribution of Series A Units of the Continuing Fund to unitholders of the applicable Terminating Fund will occur immediately following the Mergers, it is not expected that the Series A Units will immediately appear in the individual unitholder's account. As a result, immediately following the Merger Date, there may be a period of up to five (5) business days of illiquidity (the Illiquidity Period) during which time the individual unitholders of the applicable Terminating Fund may not be able to redeem their Series A Units of the applicable Continuing Fund. Following the Illiquidity Period, individual unitholders will be able to redeem their Series A Units in accordance with the redemption procedures of the respective Continuing Fund without a corresponding redemption fee.
(d) Subsequent to completion of the Mergers, the Terminating Funds will be wound up and terminated.
(e) The Filer will issue a press release forthwith after the Mergers are completed announcing the completion of the Mergers and the respective ratios by which units of the Terminating Funds were exchanged for Series A Units of the applicable Continuing Funds.
20. The Terminating Funds and the Continuing Funds are each a mutual fund trust under the Tax Act and, accordingly, units of all of the Funds are "qualified investments" under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans and tax-free savings accounts.
21. The transfer of the investment portfolio of each Terminating Fund to the applicable Continuing Fund (and the corresponding purchase of such investment portfolio by the Continuing Fund) as a step in the Mergers may be considered a purchase or sale of securities, knowingly caused by a registered adviser that manages the investment portfolio of the applicable Funds, from the Terminating Funds to, or by the Continuing Funds from, an associate of a "responsible person" or from or to an investment fund for which a "responsible person" acts as an adviser, contrary to NI 31-103.
22. In the absence of this order, the Filer would be prohibited from purchasing and selling the securities of the Terminating Funds (and thereby transferring their investment portfolios to the applicable Continuing Funds) in connection with the Mergers.
23. The Terminating Funds and Continuing Funds will bear none of the costs and expenses associated with any of the Mergers, and no sales charges, redemption fees or other fees or commissions will be payable by unitholders of any of the Terminating Funds in connection with any of the Mergers.
24. The transfer of assets from each Terminating Fund to the applicable Continuing Fund will take place at a value determined by common valuation procedures and unitholders of each Terminating Fund will receive Series A Units of the applicable Continuing Fund, the value of which are equal to the NAV of the units held by such unitholder in the Terminating Fund.
25. In the opinion of the Filer, the Mergers will not adversely affect unitholders of the Terminating Funds or the Continuing Funds and will in fact be in the best interests of unitholders of each of the Terminating Funds. The Filer believes that the Mergers will be beneficial to unitholders of the Terminating Funds for the following reasons:
(a) Each Continuing Fund has a larger portfolio and broader investment mandate than the applicable Terminating Fund that is merging with it, and so should offer improved portfolio diversification to unitholders of the Terminating Funds;
(b) Unitholders of each Terminating Fund should benefit from increased economies of scale and lower proportionate fund operating expenses as unitholders of the applicable Continuing Fund, as the Mergers are expected to eliminate the administrative and regulatory costs of operating the Terminating Funds as separate investment funds which costs are borne by the Terminating Funds and, therefore, indirectly by the unitholders;
(c) Series A units of each Continuing Fund will have greater liquidity through daily purchases and redemptions of Units than the applicable Terminating Funds and the Mergers will eliminate the discount to NAV for the Terminating Funds;
(d) Changes to the tax treatment of income trusts (which will result in them generally being taxed at the same rate as corporations beginning in January 2011) have resulted in a reduction in the number of income trusts in which the Terminating Funds can invest due to merger and acquisition activity and conversions back into corporations, and it is anticipated that this trend will continue. The Filer believes that the interests of the unitholders of each Terminating Fund will be better served by being invested in a larger Continuing Fund with a more flexible mandate; and
(e) Each Continuing Fund allows greater unitholder flexibility with respect to switches, reclassifications and conversions.
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 Requested Relief is granted provided that:
(a) the information circular sent to unitholders in connection with each Merger prominently discloses that unitholders can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by accessing the SEDAR website at www.sedar.com, by calling the Filer's toll free telephone number at 1-800-268-8186 or by writing to Goodman & Company, Investment Counsel Ltd., Dundee Place, 1 Adelaide Street East, 29th Floor, Toronto, Ontario M5C 2V9;
(b) upon a request by a unitholder of a Terminating Fund for financial statements, the Filer will make best efforts to provide the unitholder with financial statements of the applicable Continuing Fund;
(c) each applicable Terminating Fund and the applicable Continuing Fund with respect to a Merger have an unqualified audit report in respect of their last completed financial period; and
(d) the information circular sent to unitholders in connection with a Merger provides sufficient information about the Merger to permit unitholders to make an informed decision about the Merger.