Income Financial Trust, Income Financial Plus Trust and Quadravest Inc. - MRRS Decision
Headnote
Approval of fund merger pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.7(1)(b).
February 21, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND
AND NEWFOUNDLAND AND LABRADOR
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
INCOME FINANCIAL TRUST
AND
INCOME FINANCIAL PLUS TRUST
AND
QUADRAVEST INC. (the Filer)
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer (the "Application") on behalf of Income Financial Trust ("IFT") and Income Financial Plus Trust ("IFPT") for a decision under the securities legislation of the Jurisdictions (the "Legislation") granting approval of for IFPT to merge into IFT, as contemplated by section 5.5(1)(b) of National Instrument 81-102 Mutual Fund ("NI 81-102") (the Requested Relief). Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
1. IFT is an investment trust established under the laws of the Province of Ontario on January 27, 1999 pursuant to a trust agreement between Quadravest Inc. (the "Manager") and the Royal Trust Company as trustee (the "Trustee"). IFPT is an investment trust established under the laws of the Province of Ontario on January 29, 2002 pursuant to a trust agreement between the Manager and the Trustee. The Filer is the manager ("Manager") of both IFT and IFPT (collectively, the "Trusts"). Quadravest Capital Management Inc. ("Quadravest"), a subsidiary of the Filer, is the investment manager of each of the Trusts. The principal office address of each of the Trusts, the Manager and Quadravest is in Toronto, Ontario.
2. Units of IFT are qualified by long-form prospectus dated January 27, 1999. Units of IFPT are qualified by long form prospectus dated January 29, 2002. Units of both Trusts are not in continuous distribution, but currently trade on the Toronto Stock Exchange ("TSX").
3. The primary investment focus of both IFPT and IFT is to invest in a portfolio of financial services companies from the S&P/TSX Capped Financials Index, the S&P Financials Index or the S&P MidCap Financials Index. As at December 31, 2005, 90% of the portfolio securities held in each Filer's portfolio are the same securities.
4. The Merger was approved by unitholders of IFT at a meeting held on December 21, 2005 and was approved by unitholders of IFPT at a meeting held on February 2, 2006.
5. Upon the implementation of the Merger, units of IFPT will be exchanged for units of IFT at an exchange ratio (the "Exchange Ratio") calculated based on the relative net asset value of each of the Filers as at the close of trading on the TSX on the business day prior to the date the Merger is to be effective (the "Effective Date").
6. In lieu of the annual retraction right at net asset value occurring in March 2006, unitholders of IFPT will be permitted to redeem their units at their net asset value effective February 15, 2006, with payments of the proceeds of redemption to be made on or before February 22, 2006. Unitholders who do not wish to become unitholders of IFT and who therefore wish to take advantage of this redemption right will be required to give notice in the usual manner no later than the close of business on February 13, 2006.
7. On the Effective Date, IFPT will transfer all of its assets to IFT in consideration for an amount (the "Purchase Price") equal to the fair market value of the assets transferred to IFT on the Effective Date. IFT will satisfy the Purchase Price by assuming IFPT's liabilities and by issuing to IFPT that number of units of IFT (rounded down to the nearest whole unit) equal to the number of units of IFPT then outstanding multiplied by the Exchange Ratio. Immediately thereafter, the units of IFPT will be redeemed and the Manager will pay the redemption price therefore by delivering the applicable number of units of IFT to unitholders of IFPT, with each unitholder receiving that number of units of IFT (rounded down to the nearest whole unit) as is equal to the Exchange Ratio multiplied by the number of units of IFPT held by such unitholder immediately prior to the completion of the Merger.
8. Following the Merger, IFPT will be terminated and the units of IFT (including the units issued in connection with the Merger) will continue trading on the Toronto Stock Exchange (the "TSX") under the symbol "INC".
9. The Filer has filed press releases and material change reports to announce the Merger.
10. Should the Requested Relief be granted, the Manager intends to effect the Merger on February 28, 2006.
11. The Filer submits that the Merger will result in the following benefits:
(a) lower operating costs are expected to be realized and a lower base management and administration fee will be charged under a merged Trust;
(b) there will be a cap on the operating expenses in the merged Trust until December 31, 2007; and
(c) securityholders of each Trust will benefit from becoming investors in a larger merged Trust which, due to larger market capitalization, should increase liquidity on the TSX.
12. If the Merger is approved, the costs of implementing the Merger will be borne by the Manager.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.
The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.