National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of fund merger pursuant to an amalgamation under paragraph 5.5(1)(b) of NI 81-102 -- Approval required because amalgamation does not meet all criteria for pre-approval outlined in section 5.6 of NI 81-102 -- Current prospectus or fund facts of continuing fund not delivered to shareholders -- Continuing fund has different investment objectives and fee structure than terminating funds -- Amalgamation does not technically constitute a wind-up of the terminating funds -- Continuing fund is required to have fund facts document -- Proxy circulars includes disclosure about amalgamation and prospectus-like disclosure about continuing fund.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1)(a)(ii), 5.6(1)(c) 5.6(1)(f)(ii), 5.6(1)(f)(iii).
November 14, 2013
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
DIVIDEND 15 SPLIT CORP.,
CAPITAL GAINS INCOME STREAMS CORPORATION AND
INCOME STREAMS III CORPORATION
IN THE MATTER OF
QUADRAVEST CAPITAL MANAGEMENT INC.
(the Manager of the Funds)
(collectively, the Filers)
The principal regulator in the Jurisdiction (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval under clause 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) for the amalgamation of the Funds (the Approval Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this Application; and
(b) the Manager has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102Passport System (MI 11-102) in intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions or in MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.
This decision is based on the following facts represented by the Filers:
1. Each of the Funds is, and the corporation resulting from the amalgamation of the Funds (New Dividend 15) will be, a mutual fund corporation established under the laws of Ontario with shares listed on the Toronto Stock Exchange (TSX). Each of the Filers is subject to NI 81-102 and is, and New Dividend 15 will be, a reporting issuer in each of the Jurisdictions.
2. The head office of each of the Filers is located at 77 King Street West, Suite 4500, Toronto, Ontario. The Filers are not in default of the securities legislation in any Jurisdiction.
3. The Manager, a corporation incorporated under the laws of Ontario, is the manager of the Funds, as well as 12 other TSX-listed investment funds. The Manager will be the manager of New Dividend 15.
4. At a meeting of the shareholders of Dividend 15 Split Corp. (Dividend 15) held June 3, 2013 and at meetings of shareholders of Capital Gains Income STREAMS Corporation (CGI Streams) and Income STREAMS III Corporation (Income Streams and together with CGI Streams, the Streams Companies) held on July 10, 2013, such shareholders approved the amalgamation of the Streams Companies into Dividend 15 to form New Dividend 15 (the Amalgamation). Subject to the receipt of all necessary regulatory approvals, the Amalgamation will take place with an effective date of December 1, 2013 (the Effective Date).
5. The Amalgamation will be effected pursuant to an amalgamation agreement (the Amalgamation Agreement) to be entered into among the Funds. New Dividend 15 will be the "continuing fund" for securities law purposes resulting from the Amalgamation, and will be identical in all respects to Dividend 15, other than in respect of the Ontario corporation number issued by the Ministry of Government Services of Ontario.
6. Pursuant to the Amalgamation Agreement, holders of equity dividend shares or capital yield shares of the Streams Companies on the Effective Date will be entitled to receive the number of notional units of Dividend 15 (each a DFN Unit) determined by multiplying the number of equity dividend shares or capital yield shares that they hold as at the close of business on November 30, 2013 by the "exchange ratio". The exchange ratio will be equal to net asset value (NAV) per equity dividend share or per capital yield share on November 28, 2013, divided by the NAV per DFN Unit on such date. A DFN Unit consists of one preferred share and one class A share of Dividend 15.
7. Shareholders of the Streams Companies will continue to have the right to redeem their securities for cash at any time up to the close of business on the day prior to the Effective Date.
8. Shareholders of Dividend 15 and the Streams Companies were permitted to dissent from the Amalgamation pursuant to the provisions of the Business Corporations Act (Ontario). None of such shareholders choose to exercise such dissent rights.
9. The Amalgamation is a tax-deferred transaction under subsection 87(1) of theIncome Tax Act (Canada).
10. The circular for the meeting of shareholders of Dividend 15 (the DFN Circular) included disclosure about the Amalgamation; the circulars for the meetings of shareholders of the Streams Companies (the Streams Circulars) each included disclosure about the Amalgamation and prospectus-like disclosure concerning Dividend 15, including information regarding its fees and expenses, and investment objective and investment strategy, and a summary of the principal differences between the Streams Companies and Dividend 15 (and hence the differences to New Dividend 15). The Streams Circulars also disclosed that shareholders of CGI Streams and Income Streams could obtain the most recent financial statements and management reports of fund performance that have been made public reflecting the portfolio assets of Dividend 15 from the Manager upon request or on SEDAR at www.sedar.com and that investors could also review the provisions of the current annual information form of Dividend 15 available from the Manager upon request or on SEDAR at www.sedar.com.
11. The Streams Circulars also described the tax implications of the Amalgamation, shareholders' right to redeem if they did not wish to participate in the Amalgamation, and shareholders' right to dissent to the Amalgamation.
12. On April 5, 2013, the independent review committee (IRC) for Dividend 15 and the Streams Companies met and advised the Manager that in the unanimous view of the IRC, (a) the calling and holding of the meeting of shareholders of Dividend 15 to consider the Amalgamation, among other matters described in the DFN Circular, on the terms set forth in the DFN Circular, achieves a fair and reasonable result for shareholders of Dividend 15; (b) the calling and holding of the meetings of shareholders of the Streams Companies to consider the Amalgamation, on the terms set forth in the Streams Circulars, achieves a fair and reasonable result for shareholders of CGI Streams and Income Streams.
13. On October 22, 2013, the IRC met and advised the Manager that in the unanimous view of the IRC, the Amalgamation would achieve a fair and reasonable result for the shareholders of each of Dividend 15, CGI Streams and Income Streams.
14. The Amalgamation was also unanimously approved by the board of directors of each of Dividend 15, CGI Streams and Income Streams.
15. The costs of the CGI Streams shareholder meeting and the Income Streams shareholder meeting, as well as the portion of the costs of the DFN shareholder meeting relating to the Amalgamation, as well as the costs of the Amalgamation itself, will be paid for by the Manager.
16. The Streams Companies are currently scheduled to terminate on the Effective Date. At that time, the assets of CGI Streams and Income Streams will be entirely in cash. As a result, the opportunity to issue shares of New Dividend 15 to former shareholders of the Streams Companies is considered a cost effective way of increasing the net assets of New Dividend 15 by up to 20%. Other associated benefits include the potential of a lower expense ratio and increased trading liquidity of both the Class A shares and preferred shares of New Dividend 15. For the shareholders of CGI Streams and Income Streams, the Amalgamation offers an alternative to termination and the resultant tax implications associated therewith. That is, such shareholders will have the option of having their shares redeemed effective November 27, 2013, receiving the same price per share and the same tax consequences as would otherwise occur on termination. Alternatively, those who do not want their investment realized at that time have the option of participating in the Amalgamation, and will receive shares of New Dividend 15 on a tax-deferred basis as noted in paragraph 9 above.
17. The Filers require approval of the Amalgamation and cannot rely on subsection 5.6(1) of NI 81-102 for the following reasons:
(a) the investment objectives and fee structure of the Streams Companies are not substantially similar to those of Dividend 15 (and hence not to those of New Dividend 15), as required by clause 5.6(1)(a);
(b) a statutory amalgamation does not constitute a wind-up of the Streams Companies or Dividend 15, as required by clause 5.6(1)(c);
(c) the assets of the Streams Companies are not being acquired by Dividend 15, as required by clause 5.6(1)(d); rather, all of the assets of the Streams Companies and Dividend 15 will become the assets of New Dividend 15 on the Amalgamation;
(d) the securities of Dividend 15 are not continuously offered, and it does not have a current prospectus or fund facts document to include in the Streams Circulars, nor does New Dividend 15 (whose securities are to be issued to shareholders of Dividend 15, CGI Streams and Income Streams on the Amalgamation) have a current prospectus or fund facts document to so include, as required by clause 5.6(1)(f)(ii); and
(e) Dividend 15 does not have and New Dividend 15 will not have (and neither is required to have) a fund facts document, with the result that the Filers could not advise the shareholders of the Streams Companies or Dividend 15 that a fund facts document is available, as required by clause 5.6(1)(f)(iii).
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 Approval Sought is granted.