Strathbridge Asset Management Inc. (Re), 2021 CanLII 61977

June 28, 2021

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

CORE CANADIAN DIVIDEND TRUST

TOP 10 CANADIAN FINANCIAL TRUST

CANADIAN UTILITIES & TELECOM INCOME FUND

AND

U.S. FINANCIALS INCOME FUND

Decision

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Core Canadian Dividend Trust (“CDD”), Top 10 Canadian Financial Trust (“TCT”), Canadian Utilities & Telecom Fund (“UTE”) and U.S. Financials Income Fund (“USF”, and together with CDD, TCT and UTE, the “Terminating Funds”) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval of the proposed merger (the Merger) of the Terminating Funds into Mulvihill Premium Yield Fund (the “Continuing Fund” and together with the Terminating Funds, the “Funds”) pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) in connection with (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 subsection 4.7(1) of Multinational 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, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with Ontario, the “Canadian Jurisdictions”).

Interpretation

Defined terms contained 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 Canada with its principal offices located in Toronto, Ontario.

2. The Filer is the investment fund manager and the portfolio manager of the Funds and the trustee of the Continuing Fund.

3. The Filer is registered as an investment fund manager in the Provinces of Ontario and Quebec. The Filer is registered as a portfolio manager in the Provinces of British Columbia, Manitoba, New Brunswick, Ontario, Prince Edward Island, Quebec and Saskatchewan.

4. The Filer is not in default of the securities legislation of any province or territory of Canada.

The Terminating Funds

5. CDD is an investment fund established under the laws of the Province of Ontario pursuant to a trust agreement dated October 27, 2006.

6. TCT is an investment fund established under the laws of the Province of Ontario pursuant to a trust agreement dated February 15, 2000.

7. UTE is an investment fund established under the laws of the Province of Ontario pursuant to a trust agreement dated November 26, 2010.

8. USF is an investment fund established under the laws of the Province of Ontario pursuant to a trust agreement dated January 29, 2015.

9. CDD, TCT, UTE and USF are reporting issuers under the provinces of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

10. CDD is a closed-end investment trust that completed its initial public offering of units (the “CDD Units”) on November 16, 2006. CDD Units currently trade under the ticker symbol CDD.UN. TCT is a closed-end investment trust that completed its initial public offering of units (the “TCT Units”) on February 23, 2000. TCT Units currently trade under the ticker symbol TCT.UN. UTE is a closed-end investment trust that completed its initial public offering of units (the “UTE Units”) on December 17, 2010. UTE Units currently trade under the ticker symbol UTE.UN. USF is a closed-end investment trust that completed its initial public offering of Class A units and Class U units (collectively, the “USF Units”, and together with the CDD Units, TCT Units and UTE Units, the “Terminating Funds Units”) on February 24, 2015. The Class A units of USF currently trade under the ticker symbol USF.UN. The Class U units of USF are not listed on any exchange but are convertible into Class A units of USF on a weekly basis. The Continuing Fund offers Class A units, Class UA units, Class F units and Class UF units.

11. The investment objectives of CDD are (a) to provide Unitholders of CDD with monthly cash distributions in an amount targeted to be 6.5% per annum on the net asset value (“NAV”) of CDD; and (b) to preserve and grow the NAV per CDD Unit. CDD invests in a blue-chip portfolio consisting of high-quality, large capitalization, dividend-paying Canadian companies across multiple industry sectors that have an excellent long-term track record of dividend growth and share price appreciation.

12. The investment objectives of TCT are (a) to provide Unitholders of TCT with a stable stream of quarterly cash distributions in an amount targeted to be 7.5% per annum on the NAV of TCT and (b) to return the NAV per Unit of TCT as of August 2, 2005 (on a post-consolidated basis) of $15.60 to Unitholders upon termination of TCT. TCT invests in a portfolio consisting of securities of: (a) the six largest Canadian banks and (b) the four largest Canadian life insurance companies. TCT will generally invest not less than 5% and not more than 15% of TCT’s assets in each of the companies in the portfolio.

13. UTE has been created to provide a diversified investment in the Canadian utilities and telecommunications sectors with attractive monthly distributions. The investment objectives of UTE are (a) to pay holders of Units of UTE monthly distributions in an amount targeted to be 7.0% per annum on the NAV of UTE; and (b) to preserve and enhance UTE’s NAV while reducing portfolio volatility.

14. The investment objectives of USF are (a) to provide Unitholders of USF with quarterly cash distributions and (b) to maximize total return through capital appreciation and distributions. To achieve its investment objectives, USF invests in an actively managed portfolio of generally 20 to 30 equity securities selected from the S&P 500 Index that are classified as “financials” or “real estate” by Standard & Poor’s Global Industry Classification Standard and which have a market capitalization of at least US$10 billion and a S&P Rating of at least A- at the time of purchase

15. Other than under circumstances in which the securities regulatory authority or securities regulator of the Canadian Jurisdictions has expressly exempted a Fund therefrom, each of the Terminating Funds is governed by and follows the standard investment restrictions and practices established by NI 81-102.

16. None of CDD, TCT, UTE, USF are in default of the securities legislation of any of the Canadian Jurisdictions.

The Continuing Fund

17. The Continuing Fund is an open-ended mutual fund governed by the laws of the Province of Ontario pursuant to an amended and restated declaration of trust dated September 18, 2019.

18. The Continuing Fund is a reporting issuer in each of the Canadian Jurisdictions and its securities are distributed pursuant to a simplified prospectus, annual information form and fund facts dated September 22, 2020 and prepared in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure.

19. The Continuing Fund has been designed to provide holders with: (i) high quarterly income on a tax efficient basis; (ii) long-term capital appreciation through investment in a portfolio of high quality equity securities; and (iii) lower overall portfolio volatility. The Continuing Fund writes options to seek to earn tax efficient option premiums, reduce overall portfolio volatility and enhance the portfolio’s total return. In order to achieve its investment objectives, the Continuing Fund (i) invests in an actively managed portfolio comprised of securities from the S&P/TSX Composite Index and S&P 500 Index; and (ii) uses option writing strategies from time to time in response to market conditions to generate an enhanced tax efficient yield. The Continuing Fund is also permitted to invest in public investment funds including exchange traded funds and other funds managed by the Filer (provided that no more than 15% of the net asset value of may be invested in securities of other funds managed by the Filer and provided there are no duplication of fees) that provide exposure to such securities in accordance with applicable law.

20. Other than under circumstances in which the securities regulatory authority or securities regulator of the Canadian Jurisdictions has expressly exempted it therefrom, the Continuing Fund is governed by and follows the standard investment restrictions and practices established by NI 81-102.

21. The Continuing Fund is not in default of the securities legislation of any of the Canadian Jurisdictions.

Reasons for Approval Sought

22. The Filer proposes to merge the CDD, TCT and USF into the Continuing Fund on or about July 5, 2021 (the “CDD, TCT and USF Effective Date”) and UTE into the Continuing Fund on or about July 6, 2021 (the “UTE Effective Date”, and together with the CDD, TCT and USF Effective Date, the “Effective Dates”). Currently, CDD has net assets of approximately $1.9 million. Currently, TCT has net assets of approximately $9.3 million. Currently, UTE has net assets of approximately $12.9 million. Currently, USF has net assets of approximately $4.6 million. Currently, the Continuing Fund has net assets of approximately $20.4 million.

23. The Approval Sought is required because the Merger will not meet all of the criteria for pre-approved reorganizations and transfers set out in subsection 5.6(1) of NI 81-102.

In particular:

(a) the Merger will not be a “qualifying exchange” within the meaning of section 132.2 of the Income Tax Act (Canada) (the “ITA”) or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the ITA;

(b) the Filer believes the fundamental investment objectives of the Terminating Funds and the Continuing Fund may not be considered to be substantially similar; and

(c) The Filer believes the fee structures of the Terminating Funds and the Continuing Fund may not be considered to be substantially similar.

24. Except as described above, the Merger will otherwise comply with all other criteria for pre-approved reorganizations and transfers as set out in section 5.6 of NI 81-102.

25. The Filer has also determined that the Merger will not be a “material change” to the Continuing Fund as defined in securities legislation.

The Merger

26. A press release with respect to the Merger was issued and filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) on May 13, 2021.

27. A material change report with respect to the Merger was filed on SEDAR for the Terminating Funds on May 13, 2021.

28. Pursuant to National Instrument 81-107 Independent Review Committee for Investment Funds, the independent review committee of the Terminating Funds (the “IRC”) reviewed the Merger as a potential “conflict of interest matter”, and provided its positive recommendation for the Merger, after determining that the Merger would achieve a fair and reasonable result for the Terminating Funds.

29. Pursuant to paragraph 5.1(1)(f) of NI 81-102, unitholders of the Terminating Funds have approved the merger at a special meeting of unitholders held on June 18, 2021 and June 28, 2021 (the “Meeting”), as required by NI 81-102.

30. Prior to the Meeting, a notice of meeting, management information circular dated May 13, 2021 (the “Circular”), forms of proxy in connection with the Meeting (collectively, the “Meeting Materials”) and the fund facts for the Continuing Fund was mailed to the unitholders of the Terminating Funds and filed on SEDAR in accordance with applicable securities laws.

31. The Circular described all of the relevant facts concerning the Merger, including a description of the proposed Merger, information about the Funds, including the differences between the respective investment objectives of the Funds, and income tax considerations for unitholders of the Terminating Funds, the different fee structures, as well as the IRC’s recommendation of the Merger, so that unitholders of the Terminating Funds may make an informed decision before voting on whether to approve the Merger.

32. The Circular also described the various ways in which unitholders can obtain for each of the Funds, as applicable, at no cost, the simplified prospectus, the annual information form, the comparative financial statements and the management report of fund performance.

33. Investors of the Terminating Funds had an opportunity to consider this information prior to voting on the Merger at the Meeting.

34. The Filer will pay for the costs and expenses associated with the Merger, including the cost of holding the meeting and of soliciting proxies, including the costs of mailing the Circular and accompanying materials. None of the Funds will bear any of the costs and expenses associated with the Merger.

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

36. The investment portfolio and other assets of the Terminating Funds to be acquired by the Continuing Fund in order to effect the Merger are currently, or will be on the applicable 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.

37. The cash and any other assets of the Terminating Funds acquired by the Continuing Fund in connection with the Merger will be acquired in compliance with NI 81-102.

38. The Merger will be structured substantially as follows:

(a) The value of the Terminating Funds’ portfolios and other assets will be determined as of the close of trading on the business day immediately preceding the applicable Effective Date.

(b) Immediately following the close of business on the applicable Effective Date, the Terminating Funds will transfer all or substantially all of their net assets to the Continuing Fund in consideration for the issuance by the Continuing Fund to the applicable Terminating Fund of a number of the Continuing Fund’s Class A units in respect of CDD Units, TCT Units and UTE Units and a number of the Continuing Fund’s Class F units in respect of the USF Units (collectively, the “Continuing Fund Units”) determined based on an exchange ratio calculated based on the relative NAVs of the Continuing Fund Units and Terminating Funds Units (the “Exchange Ratio”).

(c) Immediately following the transfer of assets of the Terminating Funds to the Continuing Fund and the issuance of Continuing Fund Units to the Terminating Funds, all of the Terminating Funds Units will be automatically redeemed.

(d) Each unitholder of Terminating Funds Units will receive such number of the Continuing Fund Units, as determined by the Exchange Ratio.

(e) The Terminating Funds Units will, subject to the approval of the Toronto Stock Exchange (“TSX”), be de-listed from the TSX in advance of the applicable Effective Date.

(f) As soon as reasonably possible following the Merger, the Terminating Funds will be wound up and the Continuing Fund will continue as an open-ended mutual fund existing under the laws of Ontario.

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

40. Unitholders will have a special redemption right to redeem their units if they so choose on June 30, 2021 prior to the Effective Dates, if they do not wish to participate in the Merger.

41. In addition, unitholders of the Terminating Funds will be able to trade their Terminating Funds Units on the TSX in the ordinary course at least until the close of business on the business day before the respective Effective Dates.

Benefits of the Merger

42. The Filer believes that the Merger is beneficial to unitholders of the Terminating Fund for the following reasons:

(a) Unitholders will be provided with an opportunity to invest in a continuing fund with improved operational efficiencies and enhanced economic viability. The Merger is expected to eliminate the duplicative administrative and regulatory costs of operating CDD, TCT, UTE and USF as separate investment funds.

(b) The Merger is expected to reduce operational costs on a per unit basis and correspondingly improve returns by spreading fixed costs over a greater number of units thereby reducing the management expense ratio currently borne by holders of CDD, TCT, UTE and USF Units.

(c) The Continuing Fund is expected to have a greater number of units outstanding and a larger number of unitholders than any of the Funds. The larger net asset value of the Continuing Fund should enhance its ability to utilize its existing non-capital and capital tax losses which the Filer believes will be available to be applied against future gains and income. The utilization of these losses should provide unitholders with favourable return of capital distributions for the foreseeable future.

(d) As an open-ended mutual fund, the Continuing Fund will also be able to accept subscriptions daily and thereby have the ability to grow in size and increase in value, with lower administrative costs. In addition, the Continuing Fund’s units will be redeemable daily at net asset value.

(e) Unitholders of CDD, TCT, UTE and USF will continue to receive exposure to a blue-chip portfolio of common shares of major Canadian and U.S. issuers with enhanced income generated by option strategies.

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 is that the Approval Sought is granted.

“Darren McKall”

Darren McKall

Manager, Investment Funds and Structured Products

ONTARIO SECURITIES COMMISSION

Application No. 2021/0302

SEDAR Project No. 3225534, 3225536,

3225539, and 3225546