Acuity Funds Ltd. et al.

Decision

Headnote

One time trade of securities from 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, ss. 13.5(2)(b)(iii), 15.1.

June 20, 2011

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

ACUITY FUNDS LTD. AND

ACUITY INVESTMENT MANAGEMENT INC.

(COLLECTIVELY, THE FILERS)

AND

ACUITY SMALL CAP CORPORATION

ACUITY GROWTH & INCOME TRUST

ACUITY FOCUSED TOTAL RETURN TRUST

(COLLECTIVELY, THE TERMINATING FUNDS)

AND

ACUITY CANADIAN SMALL CAP FUND

ACUITY GROWTH & INCOME FUND

(COLLECTIVELY THE CONTINUING FUNDS, AND

TOGETHER WITH THE TERMINATING FUNDS,

THE FUNDS)

DECISION

Background

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) in connection with the transfer of assets of the Terminating Funds to the Continuing Funds to implement the mergers of the Terminating Funds with the Continuing Funds(the Mergers) (the Exemption Sought).

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

(a) 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador, Yukon, North-West Territories, and Nunavut.

Interpretation

Terms defined in MI 11-102 and National Instrument 14-101 -- Definitions 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. The head office of the Filers is located in Ontario. The Filers are not in default of securities legislation in any jurisdiction.

2. The Filers are corporations incorporated under the Business Corporations Act (Ontario) (OBCA).

3. Acuity Funds Ltd. (Acuity) is registered as an investment fund manager in Ontario.

4. Acuity is the manager of the Funds and is also the trustee of the Funds that are trusts.

5. Acuity has retained Acuity Investment Management Inc. (AIMI) as the portfolio manager of each of the Funds.

6. AIMI is registered as an adviser under the securities legislation of each of the jurisdictions.

7. Each Fund was incorporated or established, as applicable, under the laws of the Province of Ontario.

8. Each Terminating Fund is a "non-redeemable investment fund" as defined in the Legislation and its securities are listed on the Toronto Stock Exchange (TSX).

9. Each Continuing Fund is a mutual fund for the purposes of the Legislation and offers its Class A and Class F units (to be re-named MF Series Units and Series F Units) pursuant to an amended and restated simplified prospectus dated August 18, 2010, as amended.

10. The Funds are reporting issuers under the Legislation of each province and territory of Canada and are not in default of securities legislation in any jurisdiction.

11. The following Mergers on a tax-deferred basis pursuant to section 132.2 of the Tax Act are proposed:

TERMINATING FUNDS
CONTINUING FUNDS
Acuity Small Cap Corporation
Acuity Canadian Small Cap Fund
Acuity Growth & Income Trust
Acuity Growth & Income Fund
Acuity Focused Total Return Trust
Acuity Growth & Income Fund

12. The board of directors of Acuity Small Cap Corporation, and of Acuity as manager of Acuity Growth & Income Trust and Acuity Focused Total Return Trust, approved the calling of meetings to consider the Mergers and a press release and a material change report were issued and filed in respect of the Mergers.

13. As required by National Instrument 81-107 -- Independent Review Committee for Investment Funds (NI 81-107), the independent review committee of the Funds considered the proposed Mergers and recommended the proposed Mergers as achieving a fair and reasonable for each of the Funds.

14. Meetings of securityholders of the Terminating Funds were held on May 18, 2011 (the Meetings) and securityholders approved the Mergers.

15. In connection with the Meetings, Acuity sent to securityholders of the Terminating Funds a notice of special meetings of securityholders and management information circular and a related form of proxy/voting instruction card (the Meeting Materials). The Meeting Materials disclosed sufficient information for securityholders to form a reasonable judgment concerning the Mergers including a description of how the Mergers will be implemented and the tax consequences of the Mergers.

16. It is proposed that the Mergers will occur on or about July 8, 2011 (the Merger Effective Date), subject to regulatory approval.

17. The Mergers will be implemented in the following manner:

(a) The last day of trading in the securities of the Terminating Funds will be June 30, 2011, with the final settlement date being July 6, 2011.

(b) On the Merger Effective Date, each Terminating Fund will transfer its net assets (after taking into account assets required to satisfy its liabilities) to the relevant Continuing Fund in consideration for MF Series Units at a price per unit equal to the net asset value per MF Series unit at the close of business on July 8, 2011.

(c) Immediately thereafter, the MF Series Units of the Continuing Funds will be distributed by the relevant Terminating Funds to securityholders of the Terminating Funds.

(d) Subsequent to completion of the Mergers, the Terminating Funds will be dissolved or terminated, as the case may be.

(e) Acuity will issue a press release forthwith after the Mergers are completed announcing the completion of the Mergers.

18. AIMI is a "responsible person" as it is the portfolio manager of the Funds.

19. The transfer of the investment portfolio of the Terminating Funds to the Continuing Funds (and the corresponding purchase of such investment portfolio by the Continuing Funds) as a step in the Mergers may be considered a purchase or sale of securities, knowingly caused by a registered adviser of the Terminating Funds, from or to the investment portfolio of the Continuing Funds for which a "responsible person" acts as an adviser, contrary to section 13.5(2)(b)(iii) of NI 31-103.

20. In the absence of this order, AIMI would be prohibited from selling the portfolio securities of each Terminating Fund to the relevant Continuing Fund in connection with the Mergers.

21. 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 securityholders of the Terminating Funds in connection with any of the Mergers.

22. The Filers believe that the Mergers will be beneficial to securityholders as they will reduce duplication between the Funds, increase operational efficiency as costs of a Continuing Fund will be spread across a greater pool of assets, which will in turn allow for greater diversification.

Decision

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 is that the Exemption Sought is granted.

"Darren McKall"
Manager, Investment Funds Branch