Securities Law & Instruments


National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of investment fund merger -- approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- the fundamental investment objective of the terminating fund and continuing fund are not substantially similar -- unitholders of the terminating fund provided with timely and adequate disclosure regarding the merger.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 19.1.

December 5, 2018

(the Jurisdiction)




(the Filer)





The principal regulator in the Jurisdiction has received an application from the Filer on behalf of TOF for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting approval under subsection 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) to merge (the Merger) TOF and Brompton Global Dividend Growth ETF (BDIV), with BDIV as the continuing fund (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 (Principal Regulator) for this application, and

(b) the Filer has provided notice that subsection 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, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon (Jurisdictions).


Defined terms contained in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.


This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation governed by the laws of Ontario with its head office in Toronto, Ontario.

2. Brompton's head office is located at Suite 2930, Bay Wellington Tower, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3.

3. The Filer is registered under NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations as an investment fund manager, portfolio manager, commodity trading manager and an exempt market dealer in Ontario and is also registered as an investment fund manager in Newfoundland and Labrador and Quebec.

4. The Filer is a wholly-owned subsidiary of Brompton Corp.

5. The Filer is the manager and promoter of each of TOF and BDIV (the Funds).

6. The Filer is not in default of any requirement of securities legislation in any of the Jurisdictions.

Taylor North American Equity Opportunities Fund

7. TOF is a closed-end investment fund established under the laws of the Province of Ontario that is governed by an amended and restated declaration of trust dated October 16, 2013 (the TOF Declaration of Trust) with TSX Trust Company as trustee (the Trustee).

8. TOF was qualified by a prospectus dated May 29, 2012.

9. TOF's issued and outstanding units currently trade on the Toronto Stock Exchange (TSX) under the ticker symbol "TOF.UN".

10. As at November 28, 2018, TOF had an aggregate net asset value of approximately $11.9 million.

11. TOF is a reporting issuer under applicable securities legislation of the Jurisdictions. TOF is not in default of securities legislation in the Jurisdictions.

The Continuing Fund

12. BDIV is an exchange traded fund established under the laws of the Province of Ontario that is governed by a master declaration of trust dated as of October 5, 2018 with the Trustee as trustee (theBDIV Declaration of Trust).

13. BDIV was qualified by a prospectus dated October 5, 2018.

14. BDIV's issued units currently trade on the TSX under the ticker symbol "BDIV".

15. As at November 28, 2018, BDIV had an aggregate net asset value of approximately $16.8 million.

16. BDIV is a reporting issuer under applicable securities legislation of the Jurisdictions. BDIV is not in default of securities legislation in the Jurisdictions.

The Proposed Merger

17. As a result of the TOF's current small size (approximately $11.9 million as at November 28, 2018), it is becoming increasingly difficult for the Filer to efficiently execute the TOF's investment strategy while maintaining portfolio diversification and a reasonable management expense ratio. Accordingly, the Filer intends to merge TOF into BDIV.

18. As required by National Instrument 81-107Independent Review Committee for Investment Funds (NI 81-107), the Filer presented the terms of the Merger which raise a conflict of interest for the purposes of NI 81-107 and the process proposed for completion of the Merger to TOF's Independent Review Committee (IRC) on October 15, 2018 for its review and recommendation. The IRC reviewed the proposed transactions and has determined that the proposed Merger, if implemented, would achieve a fair and reasonable result for TOF.

19. The board of directors of the Filer approved the Merger. A press release and notice of meeting in respect of the proposed Merger were filed on SEDAR on October 15, 2018 and October 16, 2018, respectively. The units of TOF continue to trade on the TSX.

20. Unitholders of TOF were asked to approve the Merger at the special meeting (the Meeting) of the unitholders of TOF that was held on November 30, 2018. As BDIV will be the continuing fund after the completion of the Merger and the Merger will not result in any changes to BDIV for its current unitholders, BDIV is not required under either applicable securities laws or the BDIV Declaration of Trust to hold a special meeting of its unitholders in order to approve the Merger.

21. In connection with the Meeting, a notice of meeting and a management information circular and a related form of proxy (the Meeting Materials) were mailed to unitholders of TOF on November 8, 2018, and subsequently filed on SEDAR, in accordance with all applicable securities laws.

22. The Meeting Materials provided unitholders of TOF with information about, among other things, basic information about each of TOF and BDIV including redemption features, the management fees of BDIV and the tax consequences of the Merger. The Meeting Materials also described the various ways in which unitholders can obtain a copy of the most recent interim and annual financial statements and management reports of fund performance for each of the Funds, at no cost. Accordingly, unitholders of TOF had an opportunity to consider this information prior to voting on the Merger.

23. A summary of the IRC's recommendation was included in the Meeting Materials sent to unitholders of TOF as required by section 5.1(2) of NI 81-107.

24. The unitholders of TOF approved the Merger. A Report of Voting Results in respect of the Meeting was filed on SEDAR on November 30, 2018.

25. Subject to the approval of the TSX and the Approval Sought, it is expected that the Merger will take place on or about January 16, 2019 (the Merger Date). BDIV will continue to operate as it currently operates under the BDIV Declaration of Trust.

26. If the necessary approvals are obtained, the following steps will be carried out to effect the Merger:

(a) The units of TOF will be delisted from the TSX on or about the Merger Date.

(b) Prior to implementing the Merger, the portfolio manager of the Fund is expected to liquidate the portfolio of the Fund.

(c) TOF will transfer all or substantially all of its net assets to BDIV in consideration for the issuance by BDIV to TOF of a number of units of BDIV determined based on the Exchange Ratio (as defined herein) established as of the close of trading on the second business day immediately preceding the Merger Date. The exchange ratio (Exchange Ratio) will be calculated based on the relative net asset value of the units of TOF and the units of BDIV.

(d) Immediately following the transfer of the assets of TOF to BDIV and the issuance of units of BDIV to TOF, all units of TOF will be automatically redeemed and each holder of units of TOF participating in the Merger will receive such number and class of units of BDIV as is equal to the number and class of units of TOF held multiplied by the Exchange Ratio.

(e) Holders of units of TOF will become unitholders of units of BDIV.

(f) Following the Merger, BDIV will continue as a TSX-listed exchange-traded fund and TOF will be wound up as soon as reasonably practicable.

27. The Filer will pay all costs and reasonable expenses relating to the solicitation of proxies and holding the Meeting in connection with the Merger as well as the costs of implementing the Merger.

28. Pursuant to the TOF Declaration of Trust, unitholders of TOF will be permitted to exercise their annual redemption right prior to the Merger Date to require TOF to redeem their applicable units of TOF at their net asset value at the time of such redemption. In particular, unitholders of TOF surrendering their units for redemption on or before December 14, 2018 will have their units redeemed on December 28, 2018. Unitholders of TOF can wait until after the result of the Meeting is announced before choosing to exercise their annual redemption right.

29. The Merger is expected to be effected on a tax-deferred basis.

30. Brompton will not receive any compensation in respect of the acquisition, sale or redemptions of the units of BDIV or TOF.

31. TOF and BDIV have the same valuation procedures.

32. The assets of TOF to be acquired by BDIV as a result of the Merger are currently, or will be, acceptable to the Filer prior to the effective date of the Merger.

33. If approved, the Merger is expected to constitute a "qualifying exchange" as defined in section 132.2 of the Income Tax Act (Canada), thereby allowing the assets of TOF to be transferred to BDIV for proceeds of disposition equal to the tax cost of such assets. In such circumstances, there should be no taxable income to TOF arising from the transfer. Therefore, there should be no need to make any distributions to unitholders of TOF as a result of the transfer and there should be no tax liability to unitholders of TOF resulting from the transfer. TOF's loss carryforwards, if any, will be lost as a result of the Merger and will not be available to be applied against future income or gains of BDIV.

34. The Filer believes that the Merger will be beneficial to unitholders of TOF for the following reasons:

(a) Exposure to Global Dividend Growth Equities and Monthly Income: BDIV invests in an actively managed portfolio composed of large capitalization global equities that have a history of or, in the Manager's view, potential for dividend growth. Global dividend growth equities have historically outperformed the broader global equity market with lower volatility. BDIV currently has a monthly distribution of approximately 6.0% per annum.

(b) Lower Management Fee for Unitholders: The management fee rate for BDIV is 0.75% of the net assets of BDIV, as compared to TOF's management fee rate of 1.0% of the net assets of TOF. BDIV does not pay a trailer fee or a performance fee, both of which are currently paid by TOF.

(c) Lower Management Expense Ratio: The management expense ratio for units of units of BDIV is expected to be a maximum of approximately 0.95%, which is approximately 1.63% lower than the management expense ratio for the units of TOF.

(d) Increased Trading Liquidity: The units of BDIV are listed for trading on the TSX under the symbol "BDIV". As an exchange-traded fund, approved dealers acting as market makers for BDIV are able to offer or bid for large volumes of units of BDIV on a stock exchange, as approved dealers have the ability to create or redeem units of BDIV daily in large blocks directly from BDIV. This is expected to result in significantly improved liquidity relative to the current trading liquidity of the units of TOF, allowing an investor to buy or sell large amounts of units of BDIV without materially affecting the market price of BDIV.

(e) Better Trading Price Relative to Net Asset Value per Unit and Reduced Bid/Ask Spread: The Manager anticipates that an improvement in the trading price of the units of TOF (relative to net asset value per unit of TOF) will provide a meaningful increase in value for unitholders of TOF. As at October 12, 2018, prior to the announcement of the Meeting, TOF had a 3.6% discount to net asset value. Market makers are able to price their bids and asks for BDIV units very tightly around their estimate of net asset value. It is expected that BDIV's bid/ask spreads will be significantly reduced from TOF's bid/ask spread. This is beneficial to investors because a smaller bid/ask spread is expected to result in a lower effective cost to buy or sell units of BDIV.

(f) The Merger is Expected to be Effected on a Tax-Deferred Basis: Subject to the assumptions and qualifications set forth under "Tax Considerations Regarding the Merger" in the management information circular of TOF dated October 31, 2018 and appended hereto as Appendix "B", the Merger and issuance of units of BDIV will not result in a taxable event to unitholders of TOF.

(g) Unitholders of TOF will be offered an Accelerated Annual Redemption: If the Merger is approved by the unitholders of TOF, TOF will offer an accelerated annual redemption on December 28, 2018, payable on January 15, 2019. If the Merger is not approved, the Filer will likely terminate TOF. If the Filer were to terminate TOF, its unitholders would be required to redeem their units of TOF at 100% of their net asset value. Pursuant to the Merger, unitholders of TOF will have the option of (i) redeeming their units of TOF at 100% of their net asset value, or (ii) accepting the exchange of their units of TOF for units of BDIV. Accordingly, the Merger will provide greater optionality, and is therefore more beneficial, to unitholders of TOF than its primary alternative, such alternative being the termination of TOF.

(h) BDIV will Continue offer Former Unitholders of TOF Substantial Exposure to North American Equities: In determining the continuing fund in respect of the Merger, the Filer examined the constituent securities of the portfolios of the each of the investment funds that it manages to identify a continuing fund that would continue to offer unitholders of TOF strong exposure to North American equity securities, while also providing portfolio diversification in order to reduce the volatility to which such unitholders were exposed. As 70% of the constituent securities of BDIV are made up of North American equities, with the balance being European equities, the Filer determined that BDIV would be an appropriate choice as the continuing fund in respect of the Merger, as unitholders of TOF will continue to have exposure to similar securities after completion of the Merger.

(i) Costs and Expenses of the Merger: All costs of the Merger will be borne by the Filer and not by TOF, BDIV or either of their respective unitholders.

35. The foregoing reasons for the Merger were set out in the Meeting Materials along with certain prospectus-level disclosure concerning BDIV, including information regarding investment objectives and restrictions and risk factors applicable to an investment in BDIV.

36. Approval from the Principal Regulator is required pursuant to subsection 5.5(1)(b) of NI 81-102 because the Merger satisfies the requirements for pre-approved reorganizations and transfers set out in subsection 5.6(1) of NI 81-102, except that a reasonable person would not consider TOF and BDIV to have substantially similar investment objectives as required by subsection 5.6(1)(a)(ii) of NI 81-102.


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.

"Darren McKall"
Investment Funds and Structured Products
Ontario Securities Commission