Stanton Asset Management Inc. et al.

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- One time trade of securities between a non-redeemable investment fund and an affiliated fund, both advised by the same portfolio manager, to implement a merger -- costs of the merger borne by the manager -- relief granted from the self-dealing prohibitions in subparagraphs 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 -- Registration Requirements and Exemptions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5(2)(b)(ii) and (iii), 15.1.

December 13, 2012

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 STANTON ASSET MANAGEMENT INC. (the Filer) AND O'LEARY CANADIAN INCOME OPPORTUNITIES FUND 2 (the Terminating Fund) AND O'LEARY CANADIAN HIGH INCOME FUND (the Continuing Fund, and together with the Terminating Fund, the Funds)

DECISION

Background

The securities regulatory authority or regulators in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for exemptive relief from Section 13.5(2)(b)(ii) and (iii) of National Instrument 31-103 -- Registration Requirements and Exemptions (NI 31-103) in connection with the transfer of the investment portfolio of the Terminating Fund to the Continuing Fund in order to implement the merger (the Merger) of the Terminating Fund into the Continuing Fund (the Exemption Sought).

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

(a) L'Autorité des marchés financiers is the principal regulator (the Principal Regulator) for this application;

(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 of Canada, other than the province of Ontario; 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 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 Filer:

1. The Filer is a corporation existing under the Canada Business Corporations Act with its head office in Montreal, Quebec.

2. The Filer is registered as a portfolio manager under the securities legislation of each of Québec and Ontario (the "Legislation").

3. The Filer is the portfolio manager of each Fund and O'Leary Funds Management LP (the "Manager") is the manager of each Fund.

4. The Manager proposes to effect the Merger of the Terminating Fund into the Continuing Fund, subject to regulatory approval, on or about December 14, 2012 (the "Merger Date").

5. Each Fund was established pursuant to a declaration of trust under the laws of the Province of Ontario.

6. The Funds are reporting issuers under the securities legislation of each province of Canada.

7. Neither the Filer nor either of the Funds is in default of securities legislation in any Canadian jurisdiction.

8. The Terminating Fund is a "non-redeemable investment fund" as defined in the Legislation and units of the Terminating Fund (the "Units") are listed on the Toronto Stock Exchange ("TSX").

9. The Terminating Fund was established under the laws of the Province of Ontario pursuant to a declaration of trust dated November 26, 2010 (the "Terminating Fund Declaration") and completed its initial public offering on December 17, 2010.

10. The original long form prospectus of the Terminating Fund and the Terminating Fund Declaration provided for the conversion of the Terminating Fund into an open end mutual fund on or about December 14, 2012. In line with the Manager's overall business plan to merge mutual funds with similar investment objectives (usually as a result of conversion or merger of closed-end funds) in order to streamline and consolidate its product line and to achieve the most cost-effective management of all its funds, the Manager proposes to merge the Terminating Fund into the Continuing Fund rather than proceed with the conversion of the Terminating Fund into an open end mutual fund and its subsequent merger into the Continuing Fund.

11. The Continuing Fund is a "mutual fund" as defined in the Legislation and is governed by National Instrument 81-102 -- Mutual Funds ("NI 81-102). The Continuing Fund was originally qualified for distribution as a closed end fund, known as O'Leary Canadian Income Opportunities Fund, by a long form prospectus dated April 29, 2009 and it converted into an open end fund and was qualified for distribution as such by a simplified prospectus dated December 1, 2011, with series X units of the Fund being issued to unitholders of the former closed end fund. Subsequently the Fund was renamed O'Leary Canadian High Income Fund on January 25, 2012 and another open end fund managed by the Manager, known as O'Leary Canadian Equity Income Fund, was merged into it on March 26, 2012.

12. The Continuing Fund currently offers series A, series F, series H, series I, series M and series X units pursuant to a simplified prospectus dated June 18, 2012 (the "Simplified Prospectus").

13. The Continuing Fund proposes to file amendments to its Simplified Prospectus and annual information form (and to file an additional fund facts document) to qualify the Series Y Units to be used in the Merger shortly.

14. The Terminating Fund Declaration stipulates that "The investment activities of the Fund are to be conducted in accordance with, among other things, the investment guidelines and restrictions that are applicable to mutual funds pursuant to NI 81-102."

15. Unless an exemption has been obtained, each of the Funds follows the standard investment restrictions and practices established under the applicable securities legislation of each province of Canada.

16. The Manager is of the view that the investment objectives and strategies of the two Funds are substantially similar and that it would be in the best interests of each Fund for the Funds to be merged.

17. The investment objectives of the Terminating Fund are as follows: (a) to maximize total return for holders of Units ("Unitholders"), consisting of distributions, interest and dividend income and capital appreciation; and (b) to provide Unitholders with monthly distributions currently targeted to be $0.08 per Unit ($0.96 per annum representing an annual cash distribution of 8% based on the $12.00 per Unit issue price)."

18. The investment strategies of the Terminating Fund, include the following: "The Fund invests in an actively-managed portfolio (the "Portfolio") that is comprised primarily of publicly-traded income trust units as well as investments in dividend-paying equity securities, preferred shares, convertible debt securities and corporate bonds of issuers domiciled in Canada."

19. The investment objectives of the Continuing Fund, as stated in its Simplified Prospectus, are as follows: "to maximize total return for unitholders, consisting of distributions, interest and dividend income and capital appreciation by investing in an actively managed portfolio comprised primarily of publicly-traded dividend-paying equity securities, preferred shares, corporate bonds, and convertible debt securities of mid and large-cap issuers domiciled in Canada. The Fund will seek to provide unitholders with periodic distributions in accordance with the distribution policy established for each series."

20. The investment strategies of the Continuing Fund, as stated in its Simplified Prospectus, include the following:

"The Fund will invest in an actively managed portfolio comprised primarily of publicly-traded dividend paying equity securities, preferred shares, corporate bonds, and convertible debt securities of mid and large-cap issuers domiciled in Canada. The Fund will not invest more than 30% of its assets in issuers domiciled outside of Canada."

21. The only difference between the investment strategies of the two Funds is the reference to investment in "income trust units" in the strategies of the Terminating Fund. However, the original prospectus of the Terminating Fund stated: "The Fund will initially invest approximately 50% of the assets of the Portfolio in income trust units. Over time as market conditions evolve relating to the conversion of some income trusts to corporations, the Fund will migrate to a focus on dividend-paying common equity securities, preferred shares, convertible debt securities and corporate bonds."

22. Upon completion of the Merger, Unitholders of the Terminating Fund will receive Series Y Units of the Continuing Fund which will have a distribution policy which seeks to provide unitholders with monthly distributions. It is proposed that this policy will be stated in substantially the following manner in the amended Simplified Prospectus:

"The Fund will seek to provide unitholders of series Y units with monthly distributions in cash. Initially, the Fund will endeavour to distribute $0.72 per annum representing an annual distribution of 7.1% based on a NAV per unit of $10.05 as at October 9, 2012 of O'Leary Canadian Income Opportunities Fund 2(the closed-end fund which merged into the mutual fund, O'Leary Canadian High Income Fund, on December 14, 2012). This amount of annual distribution corresponds to a regular monthly distribution of $0.06 per series Y unit. The monthly distribution amount will be determined by the Manager on an annual basis, taking into account the market conditions, the fees and expenses of the Fund and the portfolio performance. The Manager intends to make the determination in January of each year. The Manager will determine this amount by looking at the NAV of the series on December 31 of the previous year and determine the amount assuming that market conditions remain relatively constant over the coming year. There can be no assurance that the Fund will be able to achieve its monthly distribution objectives."

23. The Manager has reviewed the portfolio of the Terminating Fund and has determined that all of the assets of the Terminating Fund's portfolio are suitable investments for the Continuing Fund and fall within the investment objectives of the Continuing Fund.

24. The Merger will not be a material change for the Continuing Fund, as the net asset value ("NAV") of the Continuing Fund is significantly larger than the NAV of the Terminating Fund. The NAV of the Continuing Fund was $172.5 million as of September 28, 2012, whereas the NAV of the Terminating Fund was $118.3 million. As a consequence of this, no unitholder approval of the Continuing Fund is required under section 5.1(g) of NI 81-102.

25. The Merger will be effected with respect to the Terminating Fund, in accordance with the "permitted merger" provisions of the Terminating Fund Declaration. The relevant provisions provide that the Manager may, without obtaining Unitholder approval, undertake a reorganization of the Fund with, or transfer of assets to, a mutual fund trust, if (i) the Fund ceases to continue after the reorganization or transfer of assets; and (ii) the transaction results in Unitholders becoming securityholders in the mutual fund trust (a "Permitted Merger"), provided that the Permitted Merger is undertaken in accordance with the terms of NI 81-102 whether the Fund is then subject to NI 81-102 or not. As a consequence, since the merger would satisfy all of the provisions of section 5.3(2) of NI 81-102 if the Fund were governed by that instrument, no unitholder approval of the Terminating Fund is required for the merger in accordance with the Terminating Fund Declaration.

26. 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 each of the Funds, and the Manager presented the terms of the Merger to the IRC at a special meeting called for this purpose on October 11, 2012, and requested the IRC's approval of the Merger. The IRC approved the merger as contemplated by 5.3(2)(a) of NI 81-102.

27. The board of directors of O'Leary Funds Management Inc., the general partner of the Manager, also approved the Merger and determined that it is in the best interests of each of the Funds. A press release was issued on October 12, 2012 announcing both the Board approval and the IRC approval. The press release was filed and the material change report in respect of the Merger will be filed on SEDAR under the profile of the Terminating Fund.

28. The press release announces the Merger more than 60 days prior to the Merger Date and unitholders of the Terminating Fund were sent notice of the merger at least 60 days prior to the Merger Date as well. In addition, unitholders of the Terminating Fund have ample opportunity to redeem their Units prior to the Merger in compliance with the redemption provisions set out in the Terminating Fund Declaration, should they wish to do so. The original prospectus and the current annual information form of the Terminating Fund states: "The Units will be redeemable at NAV per Unit on November 30, 2012 (the "First NAV Redemption Date")." This was contemplated as occurring just prior to the conversion into an open end mutual fund and now will occur just prior to the merger into an open end mutual fund.

29. The Merger involves the transfer of the assets of the Terminating Fund to the Continuing Fund which is a mutual fund to which NI 81-102 and NI 81-107 both apply and which is managed by the Manager of the Terminating Fund.

30. All costs and expenses associated with the Merger will be borne by the Manager. No sales charges, redemption fees or other fees or commissions will be payable by unitholders of the Funds in connection with the Merger.

31. The Merger will be implemented on a tax-deferred basis after the expiry of the annual redemption notice period of the Terminating Fund and as soon as practicable on or after December 14, 2012, the date originally scheduled for the conversion of the Terminating Fund into an open end mutual fund.

32. The Merger will be completed in accordance with the provisions of subsections 5.6(1)(a), (b), (c), (d), (g), (h) and (i) and subsection 5.6(2) of NI 81-102, in accordance with section 5.3(2) if it were to apply to the Terminating Fund, thus fulfilling the further requirements of the "permitted merger" provisions of the Terminating Fund Declaration.

33. The management fees for the Terminating Fund (after the increase which was disclosed and scheduled to occur upon conversion into an open end fund, which will now be effected by a merger into an open end fund rather than a conversion) are the same as the management fees for the Series Y Units of the Continuing Fund. As a result, the fee structure of the Terminating Fund and Series Y of the Continuing Fund are substantially similar, as would be required by s. 5.6(1)(a) of NI 81-102.

34. The Terminating Fund and the Continuing Fund are each a mutual fund trust under the Income Tax Act (Canada) ("Tax Act") and accordingly, units of the Funds are "qualified investments" under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered disability savings plans, registered education savings plans and tax-free savings accounts.

35. No TSX approval is required for the Merger. However, the Terminating Fund will need to comply with the requirements of the TSX to delist.

36. The NAV for units of each Fund is calculated on a daily basis on each day that the TSX is open for trading. The Funds have substantially similar valuation rules and procedures.

37. The Filer is a "responsible person" as defined in the Legislation as a result of being the portfolio manager of the Funds.

38. The transfer of the investment portfolio of the Terminating Fund to the Continuing Fund (and the corresponding purchase of such investment portfolio by the Continuing Fund) as a step in the Merger may be considered a purchase or sale of securities, knowingly caused by a registered adviser that manages the investment portfolio of the Funds, from or to the investment portfolio of (i) an associate of a responsible person (since each Fund is a trust which is an "associate" of the trustee of the Fund, which is also an affiliate of the adviser and thus a "responsible person"), and (ii) an investment fund for which a "responsible person" acts as an adviser, in each case, contrary to NI 31-103.

39. The Merger would comply with the exemption from section 13.5(2)(b) of NI 31-103 provided in subsection 6.1(4) of NI 81-107 but for subsection 6.1(2)(f). It is not possible to effect the transfer of assets from the Terminating Fund to the Continuing Fund in accordance with the "market integrity requirements", as such term is defined in Section 6.1(1) of NI 81-107, because the purchase and sale of such assets will be effected directly between the Terminating Fund and the Continuing Fund and accordingly will not be printed on the TSX.

40. The Merger is expected to take place using the following steps:

(a) Prior to the Merger Date, the Terminating Fund will sell any securities in its portfolio necessary to meet redemption requests.

(b) Effective as of close of business on last business day prior to the Merger Date, the Units of the Terminating Fund will be de-listed from the TSX.

(c) The value of the Terminating Fund's portfolio and other assets will be determined at the close of business on the Merger Date in accordance with the Terminating Fund Declaration.

(d) The Continuing Fund will acquire the investment portfolio and other assets of the Terminating Fund in exchange for Series Y Units of the Continuing Fund.

(e) The Continuing Fund will not assume liabilities of the Terminating Fund and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the Merger Date.

(f) The Series Y Units of the Continuing Fund received by the Terminating Fund will have an aggregate NAV equal to the value of the Terminating Fund's portfolio assets and other assets that the Continuing Fund is acquiring, and the Series Y Units will be issued at their applicable series NAV per unit as of the close of business on the Merger Date.

(g) The Terminating Fund will distribute to its Unitholders a sufficient amount of its net income and net realized capital gains so that it will not be subject to tax under Part I of the Tax Act for its taxation year ending on the Merger Date.

(h) Immediately thereafter, the Terminating Fund will be terminated and the Series Y Units of the Continuing Fund received by the Terminating Fund will be distributed to Unitholders of the Terminating Fund on a dollar for dollar basis in exchange for their Units in the Terminating Fund.

(i) As soon as reasonably possible following the Merger, the Terminating Fund will be wound up.

(j) The Manager will issue a press release forthwith after the Merger is completed announcing the completion of the Merger and the ratio by which Units of the Terminating Fund were exchanged for Series Y Units..

41. In the absence of this order, the Filer would be prohibited from purchasing and selling the securities of the Terminating Fund (and thereby transferring the investment portfolio of the Terminating Fund to the Continuing Fund) in connection with the Merger.

42. In the opinion of the Filer, the Merger will not adversely affect unitholders of the Terminating Fund or the Continuing Fund and will in fact be in the best interests of unitholders of both Funds. The Filer believes that the Merger will be beneficial to unitholders for the following reasons:

(a) the Merger will eliminate the administrative and regulatory costs of operating the Terminating Fund as a separate mutual fund;

(b) the Continuing Fund, after the merger of the two Funds' portfolios, will have a portfolio of even greater size than its current portfolio and will have the potential to grow even more, as the Continuing Fund will be in continuous distribution, and so should offer improved portfolio diversification to unitholders;

(c) Series Y Units of the Continuing Fund will have greater liquidity through daily purchases and redemptions than Units of the Terminating Fund and the Merger will eliminate the discount to NAV for the Terminating Fund;

(d) management fees for the Terminating Fund (after the increase which was scheduled to occur upon conversion into an open end fund) are the same as the management fees for the Series Y Units of the Continuing Fund;

(e) the Continuing Fund, as a result of its greater size, should benefit from a reduction of its management expense ratio as the fixed portion of its administrative and regulatory costs will be paid by a larger number of unitholders; and

(f) the Continuing Fund allows greater unitholder flexibility with respect to switches, reclassifications and conversions into other mutual funds managed by the Manager.

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 provided that:

(a) upon a request by a Unitholder for financial statements, the Filer will make best efforts to provide the unitholder with financial statements of the Continuing Fund; and

(b) the Terminating Fund and the Continuing Fund with respect to the Merger have an unqualified audit report in respect of their last completed financial period.

"Eric Stevenson"
Le surintendant de l'assistance aux clientèles et de l'encadrement de la distribution