Desjardins Investments Inc. et al

Decision

Headnote

Policy Statement 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- investment fund manager obtaining relief from the requirement in subsection 5.1(f) of Regulation 81-102 to obtain the prior approval of securityholders before the Proposed Mergers -- Approval of mutual fund mergers -- Approval required because these mergers do not satisfy the criteria for pre-approved reorganizations and transfers in Regulation 81-102 -- provided with timely and adequate disclosure regarding the Proposed Mergers.

Applicable Legislative Provisions

Regulation 81-102 respecting Mutual Funds, ss. 5.1(f), 5.5(1)(b), 19.1.

October 17, 2013

[Translation]

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

DESJARDINS INVESTMENTS INC.

(the Filer)

AND

IN THE MATTER OF

DIAPASON RETIREMENT PORTFOLIO C (INCOME)

AND DIAPASON RETIREMENT PORTFOLIO E

(BALANCED GROWTH)

(collectively, the Terminating Funds)

AND

IN THE MATTER OF

DIAPASON CONSERVATIVE PORTFOLIO AND

DIAPASON RETIREMENT PORTFOLIO D

(BALANCED INCOME)

(collectively, the Continuing Funds)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer, on behalf of the Terminating Funds, for a decision under the securities legislation of the Jurisdictions (the Legislation) for:

a) An exemption under section 19.1 of Regulation 81-102 respecting Mutual Funds (c. V-1.1, r. 39) (Regulation 81-102) from the requirements of subsection 5.1(f) of Regulation 81-102 in order to permit the mergers of the Diapason Retirement Portfolio C (Income) into the Diapason Conservative Portfolio and the Diapason Retirement Portfolio E into the Diapason Retirement Portfolio D (Balanced Income) (the Proposed Mergers) without obtaining prior approval of the securityholders of the Terminating Funds (the Exemption Sought), and

b) An approval of the Proposed Mergers pursuant to paragraph 5.5 (1)(b) of Regulation 81-102 (the Approval Sought).

Under the process of Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

a) the Autorité des marchés financiers is the principal regulator for this application,

b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting Passport System (c. V-1.1, r. 1) (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, Nunavut, Northwest Territories and Yukon Territory, and

c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions (c. V-1.1, r. 3) and Regulation 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 Filer:

The Filer

1. The Filer is a corporation established under the Business Corporations Act (RSQ, c. s-31.1) of Québec.

2. The Filer's head office is located at 1 Complexe Desjardins, South Tower, P.O. Box 34, Montréal Québec, H5B 1E4.

3. The Filer is duly registered as an investment fund manager in Québec, Ontario and Newfoundland and Labrador.

4. The Filer is acting as the investment fund manager, promoter, registrar and transfer agent of the Terminating Funds and the Continuing Funds (collectively, the Funds).

5. The Filer is not in default of securities legislation in any province or territory of Canada.

The Funds

6. The Funds are mutual funds trusts established under the laws of Québec pursuant to an amended and restated declaration of trust dated January 5, 2009. Desjardins Trust Inc. acts as trustee (the Trustee).

7. Units of the Funds are distributed in each province and territory of Canada under a simplified prospectus governed by Regulation 81-101 respecting Mutual Fund Prospectus Disclosure (c.V-1.1, r.38).

8. The Funds are reporting issuers under applicable securities legislation of each province and territory of Canada.

9. The net asset value of the Funds is determined by the Filer as at the close of business (Montréal time) on each business day.

10. The Funds are not in default of securities legislation in any province or territory of Canada.

The Proposed Mergers

11. The Proposed Mergers are scheduled to close on or about October 18, 2013.

12. The board of directors of the Filer approved the Proposed Mergers on June 25, 2013.

13. The Proposed Mergers will not constitute a material change for each of the Continuing Funds.

14. The Proposed Mergers will not change the constitution or proportions of the investment portfolio in which the Terminating Funds invest their respective assets, nor will the Proposed Mergers result in an increase in the management fees or operating expenses for securityholders of the Terminating Funds.

15. On June 26, 2013, the Funds issued a press release and the Terminating Funds filed a material change report with respect to the Proposed Mergers.

16. On July 12, 2013, the Autorité des marchés financiers issued a receipt for the amendment to the simplified prospectus of the Terminating Funds that includes information relating to the Proposed Mergers.

17. The Proposed Mergers were announced to securityholders of the Terminating Funds by a written notice dated July 29, 2013, which is more than 60 days prior to the scheduled closing of the Proposed Mergers. The written notice sets out the detail of the changes relating to the Proposed Mergers.

18. In accordance with the Regulation 81-107 Independent Review Committee for Investment Funds (c. V-1.1, r. 43), the Filer presented the terms of the Proposed Mergers to the independent review committee of the Terminating Funds (the IRC) for its approval. In June 2013, further to reasonable inquiry, the IRC approved the Proposed Mergers, subject to the approval of the Decision Makers, on the basis that the Proposed Mergers would achieve a fair and reasonable result for the Terminating Funds.

The reasons for the Exemption Sought and the Approval Sought

19. In accordance with subsection 5.1(f) of Regulation 81-102, the prior approval of the securityholders of a mutual fund is required before a mutual fund undertakes a reorganization with or transfers its assets to another mutual fund if:

a) the terminating fund ceases to continue after the reorganization or transfer of assets, and

b) the transaction results in the securityholders of the terminating fund becoming securityholders in the continuing fund.

(a Reorganization)

20. Subsection 5.3(2) of Regulation 81-102 permits mutual funds to merge without securityholders approval, provided the conditions in this subsection are met.

21. In particular, paragraph 5.3(2)(c) requires that a Reorganization must comply with the criteria set out in paragraph 5.6(1)(b) of Regulation 81-102. This criteria imposes prior approval of the securityholders if a mutual fund undertakes a Reorganization unless the transaction is a "qualifying exchange" within the meaning of section 132.2 of the ITA or is a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the ITA (the Qualifying Exchange Requirement).

22. The Proposed Mergers will not satisfy the criteria set out in paragraph 5.6(1)(b) of Regulation 81-102 since the Proposed Mergers will not meet the Qualifying Exchange Requirement. Consequently, the approval of the securityholders of the Terminating Funds is required because the Proposed Mergers do not satisfy all of the conditions set out in paragraph 5.3(2)(c) of Regulation 81-102.

23. Except for the condition stated above, the Proposed Mergers will meet all the other conditions under subsection 5.3(2) of Regulation 81-102.

24. All of the securityholders in each of the Terminating Funds invest through registered plans and non-taxable vehicles. Since all units of the Terminating Funds are held in registered plans and non-taxable vehicles, the Proposed Mergers will not have any negative tax consequences for securityholders, whether or not the Proposed Mergers meet the Qualifying Exchange Requirement.

25. On the date of the Proposed Mergers, the Terminating Funds will sell its assets to the Continuing Funds for an amount equal their fair value at that time. Accordingly, the Terminating Funds will realize a capital gain (or a capital loss) equal to the amount by which the fair value exceed (or are exceeded by) the adjusted cost base of the particular portfolio asset and any reasonable cost of disposition. To ensure that the Terminating funds will not be subject to tax for its current taxation year, immediately after the sale of its assets to the Continuing Funds, the Terminating Funds will distribute a sufficient amount of its net income and net realized capital gains, if any to securityholders. Since units are held in registered plans and non-taxable vehicles, the income reported will not be included in securityholders' income tax.

26. In accordance with paragraph 5.5(1)(b) of Regulation 81-102, the prior approval of the Decision Maker is required before a mutual fund undertakes a Reorganization.

27. The approval by the Decision Maker of the Proposed Mergers is required because the Proposed Mergers will not satisfy all of the conditions for pre-approved Reorganizations as set out in section 5.6 of Regulation 81-102. The Proposed Mergers will not satisfy the conditions set out in paragraphs 5.6(1)(b), 5.6(1)(e) and 5.6(1)(f) of Regulation 81-102 since:

a) the Proposed Mergers will not meet the Qualifying Exchange Requirement;

b) the Proposed Mergers will not be approved by the securityholders of the Terminating Funds; and

c) No material will be sent to the securityholders of the Terminating Funds in connection with the approval.

28. Except for the three conditions stated above, the Proposed Mergers meet all the other conditions for pre-approved Reorganizations under section 5.6 of Regulation 81-102.

29. No sales charge, redemption fees or other fees or commissions will be payable by securityholders of the Terminating Funds in connection with the Proposed Mergers.

30. The Filer will pay for the costs of the Proposed Mergers. These costs consist mainly of brokerage charges associated with the Proposed Mergers related trades that occur both before and after the Proposed Mergers date, as well as legal fees and fees related to reporting to the securityholders and with respect to the applicable regulatory requirements.

31. Assets of the Terminating Funds to be acquired by the Continuing Funds will be consistent with the investment objectives of the Continuing Funds and the Funds have substantially similar valuation policies.

32. Following the Proposed Mergers, the securityholders of the Terminating Funds will become securityholders of the Continuing Funds. As such, they will receive series of units of the Continuing Funds that are equivalent to the series of units of the Termination Funds.

33. As soon as reasonably possible following the date of the Proposed Mergers, the Terminating Funds will be wound up.

34. Securityholders of the Terminating Funds will have the right to redeem units of the Terminating Funds up to 12:00 pm on the effective date of the Proposed Mergers.

35. As stated in representation no. 17, a written notice of the Proposed Mergers was provided to securityholders of the Terminating Funds more than 60 days prior to the scheduled closing of the Proposed Mergers.

36. Effective on October 18, 2013, the Diapason Conservative Portfolio will be identified in English under the name Melodia Conservative Income Portfolio.

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 Maker under the Legislation is that the Exemption Sought and the Approval Sought are granted.

"Josée Deslauriers"
Senior Director,
Investment Funds and Continuous Disclosure
Autorité des marchés financiers