Securities Law & Instruments

Headnote

Pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, the funds and their manager are exempted from the dealer registration requirement for certain limited trading activities to be carried out by these parties in connection with warrant and rights offerings by the funds, as the limited trading activities involve: i) the forwarding of a short form prospectus or rights offering circulars and the distribution of warrants or rights to acquire units to existing holders of units and ii) the subsequent distribution of units to existing holders of warrants or rights, upon their exercise of the warrants or rights, through an appropriately registered dealer.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 74(1).

Multilateral Instrument 11-102 Passport System, s. 4.7(1).

National Instrument 45-106 Prospectus and Registration Exemptions, ss. 2.1, 3.1, 3.42, 8.5.

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.5.

August 6 , 2014

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 CANADIAN BANC CORP., DIVIDEND SELECT 15 CORP., FINANCIAL 15 SPLIT CORP., INCOME FINANCIAL TRUST AND NEW COMMERCE SPLIT FUND, AN INVESTMENT FUND WITHIN COMMERCE SPLIT CORP. (collectively, the Funds) and QUADRAVEST CAPITAL MANAGEMENT INC. (the Manager) (collectively with the Funds, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filers from the dealer registration requirement in the Legislation in respect of certain trades (the Offering Activities) to be carried out by the Manager, on behalf of Canadian Banc Corp. (BK), Dividend Select 15 Corp. (DS), Financial 15 Split Corp. (FTN), Income Financial Trust (INC) and New Commerce Split Fund (YCM), an investment fund within Commerce Split Corp. (Commerce Split and together with BK, DS, FTN and INC, the Funds), in connection with an offering (the Warrant Offering) of warrants (the Warrants) by YCM and offerings (the Rights Offerings) of rights (the Rights) by each of BK, DS, FTN and INC, in each case to acquire shares or units of the Funds, to be made as applicable pursuant to a short form prospectus (a Warrant Prospectus) or a rights offering circular (each a Circular).

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) each 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 the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador (the Passport 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 Filers:

The Funds and the Manager

1. Each of the Funds other than YCM and INC is a mutual fund corporation established under the laws of the province of Ontario.

2. Commerce Split is a mutual fund corporation established under the laws of the province of Ontario. YCM is a separate investment fund within Commerce Split, formed as a result of the capital reorganization of Commerce Split which occurred in 2010. A second investment fund within Commerce Split, known as the Original Commerce Split Fund, was wound up effective October 31, 2012. Accordingly, there is no longer any material distinction between Commerce Split and YCM.

3. INC is a mutual fund trust established under the laws of the province of Ontario.

4. Each of BK and FTN has issued two classes of shares, and YCM has issued three classes of shares, to the public on a basis which requires an equal number of shares of each such class (referred to as a Unit) be outstanding at all material times. DS has issued one class of equity shares, and INC one class of mutual fund units, to the public.

5. The head office of each of the Filers is located at 77 King Street West, Suite 4500, Toronto, Ontario, M5K 1K7.

6. The Manager was appointed investment fund manager and portfolio manager for the Funds and performs management and administrative services for the Funds pursuant to separate administration agreements and portfolio management agreements. The Manager is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador and as an adviser in the category of portfolio manager and dealer in the category of exempt market dealer in Ontario.

7. The Funds are each reporting issuers in each of the provinces of Canada and are not in default of securities legislation in any such jurisdiction.

8. While the Funds are considered to be mutual funds under securities legislation of the provinces of Canada, none of the Funds is, nor has a Fund since its inception been, in continuous distribution.

9. The initial public offerings of the Funds were conducted through the full service investment dealer channel and their shares or units were issued and are held in the book based system of CDS Clearing and Depositary Services Inc. (CDS).

Warrant Offerings and Rights Offerings

10. The Manager has filed a preliminary short form prospectus in respect of a Warrant Offering for YCM, with Warrants to be issued to holders of its Capital Shares, and a draft rights offering circular in respect of a Rights Offering for each of BK, FTN, DS and INC, with Rights to be issued to holders of their Class A Shares, Class A Shares, Equity Shares and Units, respectively. In this regard, given that the Funds each trade in securities as part of their portfolio investment activities, the Applicants may be considered to engage in the business of trading in securities. As a result, the issuance of Warrants or Rights by the Funds could be considered part of the business of trading by the Funds, requiring that a dealer be appointed in connection with the issuance of Warrants or Rights by the Funds.

11. The Warrants or Rights would be issued to such Fund securityholders through CDS and no consideration would be paid to the Funds in respect of the issuance of the Warrants or Rights. The Warrants or Rights would entitle holders thereof to acquire additional Units, shares or mutual fund units of the applicable Fund at a subscription price which will be determined by reference to the Fund's net asset value per Unit (net asset value per equity share in the case of DS and net asset value per mutual fund unit, in the case of INC).

12. The Manager has applied to list any such Warrants or Rights on the TSX and such Warrants or Rights, once issued, may be transferred or exercised by the holder.

13. The term for the exercise of the Warrants will not exceed six months. The term for the exercise of the Rights would not be less than 21 days nor more than 90 days, and the other conditions in section 2.2 of National Instrument 45-101 Rights Offerings would be complied with.

14. A Warrant Offering or Rights Offering also provides holders with an additional subscription privilege which will permit holders who exercise their Warrants or Rights to purchase additional Units, shares or mutual fund units not subscribed for initially by holders who were issued Warrants under the Warrant Offering or Rights under the Rights Offering. The terms of the Warrants will be set forth in a warrant indenture and a trust company will act as warrant agent to receive subscriptions from holders of warrants and to perform certain services relating to the exercise and transfer of warrants pursuant to the warrant indenture; similarly, an agency agreement would be entered into in respect of any Rights Offering. The warrant indenture or agency agreement will contain standard anti-dilution provisions designed to protect holders of Warrants or Rights in the event of certain corporate actions which may have a dilutive effect on the Warrants or Rights.

15. All trades in Warrants or Rights and all exercises of Warrants or Rights would be effected through CDS participants who will hold the Warrants or Rights on behalf of beneficial owners. Therefore, beneficial owners who wish to exercise or transfer their Warrants or Rights will need to contact and deal with the CDS participant through which they hold such securities and all such trades will therefore occur through a registered dealer. Accordingly, at the time an investor makes an investment decision, whether to exercise and subscribe for additional Units, shares or mutual fund units of a Fund and pay the subscription price or to sell such Warrant or Right, such trade would be processed through a CDS participant. The Funds will pay an exercise fee at the time a Warrant or Right is exercised to the CDS participant whose client is exercising the Warrant or Right.

16. No such fee will be payable by holders on the issuance of the Warrants or Rights.

17. The Warrant Offering, under a Warrant Prospectus prepared using Form 44-101F1, will consist of the distribution of the Warrant Prospectus and the issuance of Warrants to holders of the applicable class of shares of YCM as at the record date specified in the Warrant Prospectus, after the Warrant Prospectus has been filed and final receipts obtained therefor under the Legislation and the securities legislation of each of the Passport Jurisdictions; and the distribution of Units to holders of the Warrants upon the exercise of such Warrants by the respective holders, will be made through a registered dealer that is registered in a category that permits the registered dealer to make such a distribution.

18. Rights Offerings, under a Circular prepared using Form 45-101F1, will consist of the distribution of the Circular and the issuance of Rights to holders of the applicable classes of shares or units of the Funds as at the record date specified in the Circular, after the Circular has been filed with and accepted by the Commission and the other applicable regulators of each of the Passport Jurisdictions; and the distribution of Units, shares or mutual fund units to holders of the rights upon the exercise of such Rights by the respective holders, will be made through a registered dealer that is registered in a category that permits the registered dealer to make such a distribution.

19. The independent review committee (IRC) for each Fund has advised the Manager that in the view of the IRC the making of the Warrant Offering or Rights Offering, as the case may be, achieves a fair and reasonable result for the applicable Fund. The issuance of the Warrants or Rights will be conditional upon the approval of the TSX to such issuance and the listing of the Warrants or Rights, and the securities issuable upon the exercise of such Warrants or Rights, on the TSX.

20. Although the final amendments to National Instrument 81-102 Mutual Funds released on June 19, 2014 under the title "Modernization of Investment Fund Product Regulation (Phase 2)" (the NI 81-102 Amendments) would prohibit investment funds subject to that Instrument (which would include the Funds) from undertaking warrant offerings or rights offerings, due to the regulatory concerns expressed in the NI 81-102 Amendments, the Warrant Offering and Rights Offerings had been contemplated well in advance of the publication of the NI 81-102 Amendments and the preliminary Warrant Prospectus and most of the draft Circulars had been filed prior to the time the NI 81-102 Amendments were released on June 19, 2014.

21. The Warrants or Rights will be issued to the applicable securityholders of the Funds as soon as practicable after the issuance of a final receipt for the Warrant Prospectus or acceptance of any such Circular, subject to compliance with the applicable rules of the TSX in this regard.

22. As a result of the elimination of the dealer registration exemptions in National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106), the dealer registration exemption for rights offerings in NI 45-106 and National Instrument 45-101 Rights Offerings is no longer available.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation.

The decision of the principal regulator under the Legislation is that the Funds, and the Manager acting on behalf of the Funds, are not subject to the dealer registration requirement in respect of the Offering Activities.

"James Turner"
Vice Chair
Ontario Securities Commission
 
"Christopher Portner"
Commissioner
Ontario Securities Commission