Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – closed-end investment funds and split fund exempt from prospectus requirement in connection with resale of securities purchased under market purchase or redemption programs – relief needed so that repurchased securities can be resold in the market without the need for prospectus qualification – funds are reporting issuers and subject to continuous disclosure requirements – resales of repurchased or redeemed securities will be made subject to same conditions applicable to resales by a control person – sales to be conducted through the TSX – securities resold in a calendar year must be equivalent to no more than 10% of the fund’s outstanding securities at beginning of that year – any repurchased securities unsold after 16 months will be cancelled.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53(1), 74(1).

October 7, 2016

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
STRATHBRIDGE ASSET MANAGEMENT INC.
(the Filer)

AND

IN THE MATTER OF
THE CLOSED-END FUNDS AND
THE SPLIT FUND LISTED IN
SCHEDULE A, ATTACHED
(Schedule A) (collectively, the Funds)

DECISION

Background

The securities regulatory authority or regulator in the Jurisdiction (the Decision Maker) has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting each Fund from the requirement to file a prospectus (the Prospectus Requirement) in connection with the resale by the Fund of its securities listed on the Toronto Stock Exchange (TSX) set out in Schedule A (the Listed Securities) that have been repurchased by the Fund pursuant to its Repurchase Programs (defined below) or redeemed by the Fund pursuant to its Redemption Programs (defined below) (the Exemption 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 Filer has provided notice that paragraph 4.7(1)(c) 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, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (together with Ontario, the Applicable Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions or MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

Representations

This decision is based on the following facts represented by the Filer on its own behalf and on behalf of the Funds:

The Filer

1.             The Filer is a corporation incorporated and subsisting under the laws of Canada with its head office located in Toronto, Ontario.

2.             The Filer is registered as an investment fund manager in Newfoundland and Labrador, Quebec and the Jurisdiction, a mutual fund dealer in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Prince Edward Island, Saskatchewan and the Jurisdiction, an exempt market dealer in Newfoundland and Labrador and the Jurisdiction and as a portfolio manager in the Applicable Jurisdictions.

3.             The Filer is the investment fund manager and portfolio manager of each of the Funds.

4.             The Filer is not in default of securities legislation in any of the Applicable Jurisdictions.

The Funds

5.             Each Fund:

(a)           is a trust established and organized pursuant to a trust agreement under the laws of the Province of Ontario. RBC Investor Services Trust is the trustee of the Funds;

(b)           has offered its securities, including the Listed Securities, pursuant to a prospectus prepared and filed in accordance with National Instrument 41-101 General Prospectus Requirements and is a reporting issuer under the laws of all of the Applicable Jurisdictions. The date of the prospectus for the initial and any subsequent public offering of each Fund’s securities is indicated in Schedule A;

(c)           is subject to the 81 series of national instruments including National Instrument 81-102 Investment Funds (NI 81-102), National Instrument 81-106 Investment Fund Continuous Disclosure and National Instrument 81-107 Independent Review Committee for Investment Funds; and

(d)           is an exchange-traded investment fund whose securities are not in continuous distribution. The number of issued and outstanding securities of each Fund is set out in Schedule A.

6.             Each Closed-End Fund is a non-redeemable investment fund and the Split Fund is a mutual fund.

7.             The Split Fund is a “fixed portfolio ETF” as defined in NI 81-102. The Split Fund is operated in a similar manner as the Closed-end Funds but for the fact that the Split Fund has two classes of securities, Capital Units and Preferred Securities, each with an equal number of securities outstanding.

8.             None of the Funds is in default of securities legislation in any of the Applicable Jurisdictions.

The Repurchase Programs and the Redemption Programs

9.             To enhance liquidity:

(a)           each Fund has the discretionary purchase program described below in respect of all of its Listed Securities (the Discretionary Purchase Program); and

(b)           each of NDX Growth & Income Fund (the NGI Fund) and U.S. Financials Income Fund (the USFI Fund) has the mandatory purchase program described below in respect of all of its Listed Securities and the Filer is planning to amend the trust agreement of each of the other Funds to add an identical mandatory purchase program in respect of all of each of the other Fund’s Listed Securities (collectively, the Mandatory Purchase Program). The Filer will provide 30 days’ written notice to securityholders of these other Funds prior to implementing the Mandatory Purchase Program containing a description of the program and the effective date on which it will be implemented.

The Discretionary Purchase Program and the Mandatory Purchase Program are referred to collectively in this decision as the Repurchase Programs.

10.          Each Fund has the Monthly Redemption Program and the Annual Redemption Program described below (collectively, the Redemption Programs).

11.          The terms of the Discretionary Purchase Program and Redemption Programs for each Fund are disclosed in the prospectus qualifying each Fund’s securities. The terms of the Mandatory Purchase Program for NGI Fund and USFI Fund are disclosed in the prospectus qualifying each Fund’s securities, and for each of the other Funds will be disclosed in the Fund’s annual information form.

Mandatory Purchase Program

12.          The trust agreements of NGI Fund and USFI Fund provide that the Fund, subject to certain exceptions noted below and compliance with any applicable regulatory requirements, is obligated to purchase any class A units of the Fund offered on the TSX if at any time the price at which the class A units are then offered for sale on the TSX is less than 98% of the latest net asset value (NAV) per class A unit provided that the maximum number of class A units that the Fund is required to purchase pursuant to the Mandatory Purchase Program in any rolling 10 business day period is 10% of the number of such class A units outstanding at the beginning of such 10 business day period.

13.          Purchases under the Mandatory Purchase Program will only be made to the extent they may be funded by any excess income (if any) remaining in the Fund’s portfolio after the payment of (or accrual for) all regular distributions to securityholders and all expenses. The trust agreements of NGI Fund and USFI Fund provide that the Fund will not be obligated to make such purchases if, among other things,

(a)           the Fund lacks the cash or other resources to make such purchases,

(b)           in the opinion of the Filer, the making of such purchases by the Fund

(i)            would adversely affect the ongoing activities of the Fund,

(ii)           is not in the best interests of the securityholders of the Fund or

(iii)          could result in the marketability of the Fund’s securities being materially impaired to the detriment of the securityholders of the Fund or

(c)           there is, in the judgment of the Filer

(i)            any material legal action or proceeding instituted or threatened, challenging such transactions or otherwise materially adversely affecting the Fund or

(ii)           a suspension of or limitation on prices for trading securities generally on any exchange on which portfolio securities are traded.

Discretionary Purchase Program

14.          The trust agreement of each of the Funds provides that the Fund, subject to applicable regulatory requirements, shall have the right, but not the obligation, exercisable in its sole discretion, at any time, to purchase securities of the Fund listed on the TSX which are outstanding in the market at prevailing market prices provided the market purchase price of the securities is less than their then current NAV per security.

Monthly Redemption Program

15.          Subject to a Fund’s right to suspend redemptions, securities of a Fund may be redeemed at the redemption price calculated as described in Schedule A on the last day of each month (other than a month on which an annual redemption date occurs) provided that such securities have been surrendered for redemption by the securityholder on or before the cut-off date set out in the Fund’s prospectus (the Monthly Redemption Program).

Annual Redemption Program

16.          Subject to a Fund’s right to suspend redemptions, securities of a Fund may be redeemed at the annual redemption price calculated as described in Schedule A on the annual redemption date set out in the Fund’s prospectus provided that such securities have been surrendered for redemption by the securityholder on or before the annual cut-off date set out in the Fund’s prospectus (the Annual Redemption Program).

Resale of Repurchased Securities or Redeemed Securities

17.          Purchases of securities made by all Funds under the Discretionary Purchase Program and the Redemption Programs are, purchases of securities made by NGI Fund and USFI Fund under the Mandatory Purchase Program are, and purchases of securities made by all of the other Funds under the Mandatory Purchase Program will be, exempt from the issuer bid requirements of the Legislation pursuant to exemptions contained therein.

18.          Each Fund wishes to resell, in the Filer’s sole discretion, through one or more securities dealers and through the facilities of the TSX (or another exchange on which the Listed Securities of the Fund are then listed), Listed Securities repurchased by the Fund pursuant to the Repurchase Programs (Repurchased Securities) or redeemed pursuant to the Redemption Programs (Redeemed Securities).

19.          The trust agreements of NGI Fund and USFI Fund provide that any securities purchased by the Fund will be cancelled unless the Fund is able to resell the securities in accordance with applicable law or any exemption therefrom and the Filer is planning to amend the trust agreement of each of the other Funds to include the identical resale provision (collectively, the Resale Provision). The Filer will provide 30 days’ written notice to securityholders of these other Funds prior to amending their trust agreements to include the Resale Provision. The Resale Provision for NGI Fund and USFI Fund is disclosed in the prospectus qualifying the securities of these Funds, and for each of the other Funds will be disclosed in the Fund’s annual information form.

20.          Increases in a Fund’s management expense ratio resulting from repurchases and redemptions of its securities without the resale of such securities may negatively affect the liquidity of the Fund’s securities on the secondary trading market. Allowing the Fund to resell Repurchased Securities and Redeemed Securities without incurring the cost of prospectus qualification will assist with (a) maintaining the Fund’s management expense ratio at as low a level as possible and (b) improving the liquidity of the Fund’s securities on the secondary trading market.

21.          All Repurchased Securities or Redeemed Securities will be held by a Fund for a period of four months after their repurchase or redemption by the Fund (the Holding Period), prior to any resale.

22.          The resale of Repurchased Securities or Redeemed Securities will not have a significant impact on the market price of the securities of the Funds.

23.          Repurchased Securities or Redeemed Securities held by a Fund for resale will not be resold for less than the applicable repurchase or redemption price paid for such securities by the Fund. Consistent with section 9.3 of NI 81-102, Repurchased Securities or Redeemed Securities held by a Fund for resale will also not be resold for a price that is less than their NAV per security at the time of resale.

24.          Repurchased Securities or Redeemed Securities that a Fund does not resell within 12 months after the Holding Period (that is, within 16 months after the date of repurchase or redemption, as applicable) will be cancelled by the Fund.

25.          During any calendar year:

(a)           no Closed-End Fund will resell an aggregate number of Repurchased Securities and Redeemed Securities that is greater than 10% of the number of Listed Securities of the Closed-End Fund outstanding at the beginning of such calendar year; and

(b)           the Split Fund will not, in reselling any Capital Units and Preferred Securities either separately or combined as a combined security (each consisting of one Capital Unit and one Preferred Security):

(i)            resell an aggregate number of Repurchased Capital Units and Redeemed Capital Units that is greater than 10% of the number of Capital Units of the Split Fund outstanding at the beginning of such calendar year; or

(ii)           resell an aggregate number of Repurchased Preferred Securities and Redeemed Preferred Securities that is greater than 10% of the number of Preferred Securities of the Split Fund outstanding at the beginning of such calendar year.

26.          Prospective purchasers of Repurchased Securities or Redeemed Securities of each Fund will have access to the Fund’s continuous disclosure, which is and will be filed on SEDAR.

27.          The Legislation provides that a trade by or on behalf of an issuer in previously issued securities of that issuer that have been purchased or redeemed by that issuer is a distribution and, as such, is subject to the Prospectus Requirement. In the absence of the Exemption Sought, the Funds will not be able to resell the Repurchased Securities and Redeemed Securities without qualifying such securities for distribution by prospectus.

Decision

The Decision Maker is satisfied that the decision satisfies 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 is granted provided that:

(a)           prior to a Fund conducting any resale in reliance on this decision, the Fund’s trust agreement provides (with any amendments described above having been made and any notice of such amendments described above having been given) for all of the following programs and provisions, each having the terms described in this decision: (i) the Redemption Program, (ii) the Discretionary Purchase Program, (iii) the Mandatory Purchase Program and (iv) the Resale Provision;

(b)           the Repurchased Securities and Redeemed Securities are otherwise sold by a Fund in compliance with the Legislation through the facilities of and in accordance with the regulations and policies of the TSX or of any other exchange on which the Listed Securities of the Fund are then listed; and

(c)           the Fund complies with the conditions of paragraphs 1 through 5 of subsection 2.8(2) of National Instrument 45-102 Resale of Securities with respect to the sale of the Repurchased Securities and Redeemed Securities.

“Christopher Portner”
Commissioner,
Ontario Securities Commission

“AnneMarie Ryan”
Commissioner,
Ontario Securities Commission



SCHEDULE A

Closed-End Funds

Name

Issued and outstanding TSX-listed securities, ticker symbol and date of receipted final prospectus(es) qualifying the securities for distribution

Securities redeemable monthly and annually (if surrendered by the cut-off date set out in the Fund’s prospectus) using the pricing mechanism summarized below

Canadian Utilities & Telecom Income Fund (CUTI Fund)

Issued and Outstanding Units(1):

3,509,502 Units

Monthly(3), (4)

At lesser of (i) 95% of the Market Price and (ii) 100% of the Closing Market Price.

Annually (other than CUTI Fund and LVUEI Fund)

At net asset value (NAV) per security.

Annually (CUTI Fund and LVUSEI Fund only)

At NAV per security, less costs associated with the redemption.

Class U Units (NGI Fund and USFI Fund only)

Unlisted Class U Units are designed for investment in USD with the expectation that liquidity will be by conversion to, and sale on the exchange or redemption of, Class A Units.

TSX Ticker Symbol:

UTE.UN

Date of Prospectus:

November 26, 2010

Core Canadian Dividend Trust

Issued and Outstanding Units(1):

774,846 Units

TSX Ticker Symbol:

CDD.UN

Date of Prospectus:

November 6, 2009
October 27, 2006

Low Volatility U.S. Equity Income Fund (LVUSEI Fund)

Issued and Outstanding Units(1):

867,508 Units

TSX Ticker Symbol:

LVU.UN

Date of Prospectus:

February 26, 2013

NDX Growth & Income Fund
(NGI Fund)

Issued and Outstanding Units(1):

1,460,644 Class A Units
159,925 Class U Units

TSX Ticker Symbol(2):

NGI.UN (Class A Units)

Date of Prospectus:

November 28, 2013

U.S. Financials Income Fund
(USFI Fund)

Issued and Outstanding Units(1):

3,439,188 Class A Units
363,300 Class U Units

TSX Ticker Symbol(2):

USF.UN (Class A Units)

Date of Prospectus:

January 29, 2015

Top 10 Canadian Financial Trust

Issued and Outstanding Units(1):

1,688,179 Units

TSX Ticker Symbol:

TCT.UN

Date of Prospectus:

November 6, 2009
September 28, 2005
February 15, 2000

Notes:

(1)           As at December 31, 2015.

(2)           Class U Units of the Fund are not listed on the TSX.

(3)           “Market Price” means the weighted average trading price of the Units or Class A Units, as the case may be, on the principal stock exchange on which the Units or Class A Units, as applicable, are listed for the ten trading days immediately preceding the applicable redemption date.

(4)           “Closing Market Price” means the closing price of the Units or Class A Units, as the case may be, on the principal stock exchange on which the Units or Class A Units, as applicable, are listed or, if there was no trade on the relevant date, the average of the last bid and the last asking prices of the Units or Class A Units, as the case may be, on the principal stock exchange on which the Units or Class A Units, as applicable, are listed.


Split Fund

Name

Issued and outstanding TSX-listed securities, ticker symbol and date of initial receipted final prospectus qualifying the securities for distribution

Securities redeemable monthly and annually (if surrendered by the cut-off date set out in the Fund’s prospectus) using the pricing mechanism summarized below

Top 10 Split Trust

Issued and Outstanding Units(1):

1,332,821 (Capital Units)
1,332,821 (Preferred Securities)

Monthly Redemption(2),(3)

For Capital Units

At a discount to the lesser of Market Price and NAV per Unit in each case minus the cost of acquiring a Preferred Security in the market.

For Preferred Securities(2),(3)

At a discount to the lesser of Market Price and NAV per Unit minus in each case the cost of acquiring a Capital Unit in the market.

Annual Redemption(2),(3)

Combined at NAV per Unit OR in respect of a Capital Unit redeemed, the lesser of Market Price and NAV per Unit minus the cost of acquiring a Preferred Security in the market.

TSX Ticker Symbol:

TXT.UN (Capital Units)
TXT.PR.A (Preferred Securities)

Date of Prospectus:

January 27, 2006

Notes:

(1)           As at December 31, 2015.

(2)           “NAV per Unit” means the NAV of one Capital Unit together with one Preferred Security.

(3)           “Market Price” means the sum of (a) the weighted average trading price of the Capital Units on the principal stock exchange on which the Capital Units are listed for the ten trading days immediately preceding the applicable redemption date and (b) the weighted average trading price of the Preferred Securities on the principal stock exchange on which the Preferred Securities are listed for the ten trading days immediately preceding the applicable redemption date.