Brandes Investment Partners & Co. (Re), 2018 CanLII 122091

December 7, 2018

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 brandes INVESTMENT partners & Co. (the Filer)

and

GREYSTONE CANADIAN EQUITY INCOME & GROWTH FUND

(the Terminating Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the proposed merger (the Merger) of the Terminating Fund into Morningstar Strategic Canadian Equity Fund (the Continuing Fund, and together with the Terminating Fund, the Funds) pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (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 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (collectively with the Jurisdiction, the “Jurisdictions”).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 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 existing under the laws of Nova Scotia having its registered head office in Toronto, Ontario. The Filer operates under the retail trade name Bridgehouse Asset Managers.

2. The Filer is registered as an investment fund manager in each of Ontario, Quebec, and Newfoundland and Labrador, as a portfolio manager and exempt market dealer in all provinces and territories, and as a mutual fund dealer in all provinces and territories except Quebec.

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

The Funds

4. The Funds are open-end mutual funds established as trusts under the laws of the province of Ontario.

5. Units of each of the Funds are currently qualified for sale by a simplified prospectus, annual information form and fund facts dated May 10, 2018, as amended, which have been filed and receipted in Ontario and each of the Jurisdictions.

6. Each of the Funds is a reporting issuer under the applicable securities legislation of the Jurisdictions, and is subject to the requirements of NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure.

7. Neither the Filer nor the Funds is in default under the securities legislation of any of the Jurisdictions.

8. Each of the Funds follows the standard investment restrictions and practices established under the Legislation, except to the extent that the Fund has received an exemption to deviate therefrom.

9. The net asset value (NAV) of each Fund is calculated on each day that the Toronto Stock Exchange is open for business in accordance with the Funds’ valuation policy and as described in each Fund’s prospectus.

Reason for Approval Sought

10. Regulatory approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. In particular, the investment objectives of the Continuing Fund are not, or may be considered not to be, “substantially similar” to the investment objectives of the Terminating Fund. In addition, the Merger may not be a tax-deferred transaction as described in paragraph 5.6(1)(b) of NI 81-102. Except for these two reasons, the Merger will otherwise comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

11. The investment objectives of the Terminating Fund and the Continuing Fund are as follows:

Greystone Canadian Equity Income & Growth Fund

(Terminating Fund)

Morningstar Strategic Canadian Equity Fund

(Continuing Fund)

The fundamental investment objective of Greystone Canadian Equity Income & Growth Fund is to achieve long-term capital appreciation and dividend income by investing primarily in the equity securities of Canadian issuers.

The fundamental investment objective of Morningstar Strategic Canadian Equity Fund is to achieve long-term capital appreciation by investing primarily in the equity securities of Canadian issuers.

12. The Merger may be implemented on a tax-deferred basis or a taxable basis. Due to recent changes in market conditions, the Filer, as of the date of this decision, is not in a position to fully assess and determine the tax consequences of the Merger. In deciding whether to proceed with the Merger on a tax-deferred basis or a taxable basis, the Filer is weighing the impact of the Merger on each of the Terminating Fund and Continuing Fund, and on the unitholders in the Terminating Fund and the Continuing Fund. The Filer’s determination will be communicated to unitholders in the Terminating Fund prior to, or on the day of, the Meeting. Disclosure as to the tax consequences of the implementation of the Merger on both a tax-deferred basis and a taxable basis is described in the Circular (as defined below).

13. Other than the criterion described in paragraph 10, the Merger complies with all the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

The Proposed Merger

14. The Filer intends to merge the Terminating Fund into the Continuing Fund.

15. A press release describing the proposed Merger was issued and the press release and material change report, which give notice of the proposed Merger, were filed via SEDAR on September 27, 2018.

16. As required by National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), the Filer presented the terms of the Merger to the Independent Review Committee (IRC) for its review. The IRC determined that the Merger, if implemented, will achieve a fair and reasonable result for each of the Funds.

17. The Filer is convening a special meeting of the unitholders of the Terminating Fund in order to seek the approval of the unitholders of the Terminating Fund to complete the Merger, as required by paragraph 5.1(1)(f) of NI 81-102 (the Meeting). The Meeting will be held on or about December 11, 2018.

18. The Filer has concluded that the Merger is not a material change to the Continuing Fund, and accordingly, there is no intention to convene a meeting of unitholders of the Continuing Fund to approve the Merger pursuant to paragraph 5.1(1)(g) of NI 81-102.

19. By way of order dated December 5, 2016, the Filer was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of NI 81-106 to send a printed management information circular to unitholders while proxies are being solicited, and, subject to certain conditions, instead allows a notice-and-access document (as described in the Notice-and-Access Relief) to be sent to such unitholders. In accordance with the Filer’s standard of care owed to the Funds pursuant to securities legislation, the Filer will only use the notice-and-access procedure for a particular meeting where it has concluded that it is appropriate and consistent with the purposes of notice-and-access (as described in the Companion Policy to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer) to do so, also taking into account the purpose of the meeting and whether the Funds would obtain a better participation rate by sending the management information circular with the other proxy-related materials.

20. Pursuant to the requirements of the Notice-and-Access Relief, a notice-and-access document and form of proxy in connection with the Meeting, along with the most recent fund facts of the relevant series of the Continuing Fund, was mailed to unitholders of the Terminating Fund commencing on November 6, 2018 and were concurrently filed via SEDAR. The management information circular (Circular), which the notice-and-access document provides a link to, was also filed via SEDAR at the same time.

21. If all required approvals for the Merger are obtained, it is intended that the Merger will occur after the close of business on or about December 14, 2018 (the Effective Date). The Filer therefore anticipates that each unitholder of the Terminating Fund will become a unitholder of the Continuing Fund after the close of business on the Effective Date. The Terminating Fund will be wound up as soon as reasonably possible following the Merger.

22. The Circular describes all relevant facts concerning the Merger, including the investment objectives, strategies and fee structure of the Funds, the tax implications and other consequences of the Merger, as well as the IRC’s recommendation of the Merger, so that unitholders of the Terminating Fund may make an informed decision before voting on whether to approve the Merger. The Circular also describes the various ways in which unitholders can obtain a copy of the simplified prospectus, annual information form and fund facts for the Continuing Fund, and the most recent interim and annual financial statements and management reports of fund performance.

23. Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund at any time up to the close of business on the business day immediately preceding the Effective Date. Following the Merger, all optional plans which were established with respect to the Terminating Fund will be re-established in comparable plans with respect to the Continuing Fund unless unitholders advise otherwise.

24. The costs of effecting the Merger (consisting of primarily legal and regulatory fees, and proxy solicitation, printing and mailing costs) will be borne by the Filer.

25. No sales charges will be payable by unitholders of the Funds in connection with the Merger.

26. The investment portfolio and other assets of the Terminating Fund to be acquired by the Continuing Fund in order to effect the Merger are currently, or will be on the Effective Date, acceptable to the portfolio manager of the Continuing Fund and are, or will be, consistent with the investment objectives of the Continuing Fund.

Merger Steps

27. The specific steps to implement the Merger are as follows:

(a) Prior to the Effective Date, the Terminating Fund will sell securities that do not meet the investment objective and investment strategies of the Continuing Fund. As a result, the Terminating Fund may temporarily hold cash or cash equivalents and may not be fully invested in accordance with its objectives for a short period of time prior to the Merger.

(b) The value of the Terminating Fund’s investment portfolio and other assets will be determined at the close of business on the Effective Date of the Merger in accordance with the constating documents of the Terminating Fund.

(c) Prior to the Effective Date, each of the Terminating Fund and the Continuing Fund will declare, pay and automatically reinvest a distribution to its unitholders of net realized capital gains and net income, if any, to ensure that it will not be subject to tax for its current tax year.

(d) Prior to the Effective Date, the Terminating Fund will transfer substantially all of its assets to the Continuing Fund. In return, the Continuing Fund will issue to the Terminating Fund units of the Continuing Fund having an aggregate NAV equal to the value of the assets transferred to 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 Effective Date of the Merger.

(f) Immediately thereafter, units of the Continuing Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund in exchange for their securities in the Terminating Fund on a dollar-for-dollar, series-for-series basis.

(g) The Terminating Fund will be wound-up as soon as reasonably possible following the Merger.

28. The result of the Merger will be that unitholders of the Terminating Fund will cease to be unitholders of the Terminating Fund and will become unitholders of the Continuing Fund. The Continuing Fund will continue as a publicly offered open-end mutual fund.

Benefits of the Merger

29. In the opinion of the Filer, the Merger will be beneficial to unitholders of the Funds for the following reasons:

(a) The Merger will result in a more streamlined and simplified product line-up that is easier for investors to understand.

(b) The Merger will eliminate similar fund offerings, thereby reducing the administrative and regulatory costs of operating the Terminating Fund and the Continuing Fund as separate funds.

(c) The Continuing Fund has a portfolio of greater value, allowing for increased portfolio diversification opportunities compared to the corresponding Terminating Fund.

(d) The Continuing Fund, as a result of greater size, benefits from a larger profile in the marketplace by potentially attracting more unitholders and enabling it to maintain a “critical mass”.

(e) The Continuing Fund, as a result of greater size, will allow the operating expenses to be spread over a larger asset base, which may positively impact the management expense ratio of the Continuing Fund.

(f) Unitholders of the Terminating Fund will receive units of the Continuing Fund that have a management fee that is lower than that charged in respect of the series of units of the Terminating Fund that they currently hold.

Decision

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 Merger Approval is granted, provided that the Filer obtains the prior approval of the unitholders of the Terminating Fund for the applicable Merger at the applicable Meeting, or any adjournments thereof.

“Stephen Paglia”

Stephen Paglia

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission

Appl. No. 2018/0573

Sedar Project No. 2830948