DIVIDEND GROWTH SPLIT CORP. FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual information form constitute forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this annual information form should not be unduly relied upon. These statements speak only as of the date of this annual information form.
In particular, this annual information form may contain forward-looking statements pertaining to distributable cash and distributions per Class A Share, Preferred Share or Unit. The actual results could differ materially from those anticipated in these forward-looking statements as a result of, among other things, the risk factors set out in this annual information form. The Company does not undertake any obligation to publicly update or revise any forward-looking statements.
TABLE OF CONTENTS
Rebalancing Criteria .................................................................................................................................................................... 11
2.0 INVESTMENT RESTRICTIONS ........................................................................................................................................................ 11
3.0 DESCRIPTION OF SECURITIES ....................................................................................................................................................... 12
3.1
Principal Shareholder ................................................................................................................................................................... 12
3.2
Purchase for Cancellation ............................................................................................................................................................ 12
3.3
Distributions ................................................................................................................................................................................ 13
3.3.1
Preferred Shares ............................................................................................................................................................... 13
3.3.2
Class A Shares .................................................................................................................................................................. 13
3.3.3
Distribution Reinvestment Plan ........................................................................................................................................ 13
3.4
Priority ......................................................................................................................................................................................... 14
3.4.1
Preferred Shares ............................................................................................................................................................... 14
3.4.2
Class A Shares .................................................................................................................................................................. 14
3.4.3
Class J Shares ................................................................................................................................................................... 14
3.5
Acts Requiring Shareholder Approval ......................................................................................................................................... 14
4.0 VALUATION OF PORTFOLIO SECURITIES ................................................................................................................................... 15
5.0 CALCULATION OF NET ASSET VALUE ........................................................................................................................................ 16
6.0 PURCHASES OF SHARES ................................................................................................................................................................. 17
7.0 REDEMPTIONS AND RETRACTIONS ............................................................................................................................................. 17
7.1
Redemptions ................................................................................................................................................................................ 17
7.1.1
Preferred Shares ............................................................................................................................................................... 17
7.1.2
Class A Shares .................................................................................................................................................................. 17
7.2
Retraction Privileges .................................................................................................................................................................... 17
7.2.1
Preferred Shares ............................................................................................................................................................... 17
7.2.2
Class A Shares .................................................................................................................................................................. 19
7.3
Book-Entry Only System ............................................................................................................................................................. 21
7.4
Suspension of Redemptions and Retractions ................................................................................................................................ 21
8.0 RESPONSIBILITY FOR OPERATIONS ............................................................................................................................................ 22
8.1
Management of the Company and the Manager ........................................................................................................................... 22
8.2
Manager ....................................................................................................................................................................................... 23
8.2.1
Directors and Officers of the Manager ............................................................................................................................. 23
8.2.2
Independent Review Committee ....................................................................................................................................... 23
8.2.3
Management Fee .............................................................................................................................................................. 24
8.2.4
Termination of the Management Agreement .................................................................................................................... 24
8.3
Portfolio Management ................................................................................................................................................................. 24
8.4
Custodian ..................................................................................................................................................................................... 25
8.4.1
Custodian Fees ................................................................................................................................................................. 25
8.4.2
Termination of the Custodial Services Agreement ........................................................................................................... 25
8.5
Valuation Services ....................................................................................................................................................................... 25
8.6
Auditors, Registrar and Transfer Agent ....................................................................................................................................... 25
8.7
Securities Lending Agents ........................................................................................................................................................... 26
9.0 CONFLICTS OF INTEREST ............................................................................................................................................................... 26
9.1 9.2
Principal Holders of Securities ..................................................................................................................................................... 26
Securities Held by Members of the Independent Review Committee .......................................................................................... 27
10.0 CORPORATE GOVERNANCE .......................................................................................................................................................... 27
10.1
Composition of the Independent Review Committee ................................................................................................................... 28
10.2
Proxy Voting Policy ..................................................................................................................................................................... 28
10.3
Covered Call Option Writing ....................................................................................................................................................... 29
10.4
Call Option Pricing ...................................................................................................................................................................... 29
10.5
Utilization of Cash Equivalents ................................................................................................................................................... 30
10.6
Use of Other Derivative Instruments ........................................................................................................................................... 30
10.7
Use of Derivative Instruments - General ..................................................................................................................................... 31
10.8
Securities Lending ....................................................................................................................................................................... 31
10.9
Short-Term Trading ..................................................................................................................................................................... 32
11.0 INCOME TAX CONSIDERATIONS .................................................................................................................................................. 32
11.1
Tax Treatment of the Company ................................................................................................................................................... 33
11.2
Distributions ................................................................................................................................................................................ 34
11.3
Tax Treatment of Shareholders .................................................................................................................................................... 35
11.4
Disposition of Shares ................................................................................................................................................................... 35
11.5
Exchange of Tax Information ...................................................................................................................................................... 36
12.0 REMUNERATION OF DIRECTORS, OFFICERS AND IRC ............................................................................................................ 37
13.0 MATERIAL CONTRACTS ................................................................................................................................................................. 37
13.1
Escrow Agreement ....................................................................................................................................................................... 37
14.0 OTHER MATERIAL INFORMATION ............................................................................................................................................... 37
14.1
Risk Factors ................................................................................................................................................................................. 37
GLOSSARY OF TERMS
In this annual information form, the following terms shall have the meanings set forth below, unless otherwise indicated:
"Black-Scholes Model" means a widely used option pricing model developed by Fischer Black and Myron Scholes in 1973. The model can be used to calculate the theoretical value of an option based on the current price of the underlying security, the strike price and term of the option, prevailing interest rates and the volatility of the price of the underlying security.
"Brompton" means the Brompton group of companies.
"Brompton Funds" means Brompton Corp. and its wholly owned subsidiary Brompton Funds Limited, which acts as manager of the Company. Brompton Corp. is in the business of managing investment funds.
"business day" means any day on which the TSX is open for business.
"call option" means the right, but not the obligation, of the option holder to buy a security from the seller of the option at a specified price at any time during a specified time period or at expiry.
"cash covered put option" means a put option entered into in circumstances where the seller of the put option holds cash equivalents or other acceptable cash cover (as defined in NI 81-102) sufficient to acquire the securities underlying the option at the strike price throughout the term of the option.
"cash equivalents" means, and for the purposes of "cash cover" and "cash covered put option", "cash" as used therein means:
a) cash on deposit at the Custodian;
b) an evidence of indebtedness that has a remaining term to maturity of 365 days or less and that is issued, or fully and unconditionally guaranteed as to principal and interest, by:
(i) any of the federal or provincial governments of Canada; or
(ii) the Government of the United States; or
(iii) a Canadian financial institution;
provided that, in the case of (ii) and (iii), such evidence of indebtedness has a rating of at least R-1 (mid) by DBRS or the equivalent rating from another designated rating organization; or
c) other cash cover as defined in NI 81-102.
"CDS" means CDS Clearing and Depository Services Inc.
"CDS Participant" means a participant in CDS.
"Class A Shareholder" means a holder of a Class A Share.
"Class A Shares" means the class A shares of the Company.
"Class B Shares" means the class B shares of the Company.
"Class C Shares" means the class C shares of the Company.
"Class J Shares" means the class J shares of the Company.
"Company" means Dividend Growth Split Corp.
"covered call option" means a call option entered into in circumstances where the seller of the call option holds the underlying security through the term of the option.
"CRA" means the Canada Revenue Agency or any successor organization.
"Custodial Services Agreement" means the custodian agreement entered into by the Company and the Custodian dated as of September 15, 2016, as it may be amended from time to time.
"Custodian" means CIBC Mellon Trust Company, in its capacity as custodian under the Custodial Services Agreement.
"DBRS" means DBRS Limited.
"Escrow Agent" means Computershare Trust Company of Canada, in its capacity as escrow agent under the Escrow Agreement.
"Escrow Agreement" means the escrow agreement entered into by the Company, DGS Trust and the Escrow Agent dated as of December 3, 2007, as it may be amended from time to time.
"Extraordinary Resolution" means a resolution passed by the affirmative vote of at least 66⅔% of the votes cast, either in person or by proxy, at a meeting of shareholders called for the purpose of approving such resolution.
"in-the-money" means in relation to a call option, a call option with a strike price less than the current market price of the underlying security and, in relation to a put option, a put option with a strike price greater than the current market price of the underlying security.
"Income Tax Act" means the Income Tax Act (Canada) and the regulations thereunder, as the same may be amended from time to time.
"Investment Guidelines" means the investment guidelines of the Company described in section 1.3 of this Annual Information Form.
"Investment Objectives" means the investment objectives of the Company described in section 1.2 of this Annual Information Form.
"Investment Restrictions" means the investment restrictions of the Company including without limitation those described in section 2.0 of this Annual Information Form.
"IRC" means the independent review committee established by the Manager for the Company pursuant to NI 81-107.
"Management Agreement" means the management agreement dated as of November 20, 2007 between the Company and the Manager, as it may be amended from time to time.
"Management Fee" means the management fee payable to the Manager which is described in section 8.2.3 of this Annual Information Form.
"Manager" means Brompton Funds Limited, or if applicable, its successor.
"Maturity Date" means August 30, 2029, subject to extension for successive terms of up to five years as determined by the board of directors of the Company.
"NAV per Class A Share" means the greater of (i) NAV per Unit minus $10.00 plus any accrued and unpaid distributions on a Preferred Share and (ii) nil.
"NAV per Unit" on a particular date shall be (a) if the NAV of the Company is less than or equal to the aggregate redemption price of all Preferred Shares (and any other preferred shares of any other class so designated by the Company) then outstanding and any accrued and unpaid distributions thereon (the "Preferred Share Amount"), the NAV per Unit is calculated by dividing the NAV of the Company on such day by the number of Preferred Shares (and any other preferred shares of any other class so designated by the Company) then outstanding; and (b) if the NAV of the Company is greater than the Preferred Share Amount, the NAV per Unit is calculated by (i) subtracting the Preferred Share Amount from the NAV of the Company; (ii) dividing the difference by the number of Class A Shares then outstanding and (iii) adding $10.00 plus any accrued and unpaid distributions per Preferred Share to the result obtained in clause (ii).
"NAV Valuation Date" means, at a minimum, Thursday of each week, or if any Thursday is not a business day, the immediately preceding business day, and includes any other date on which the Manager elects, in its discretion, to calculate the NAV per Unit.
"Net Asset Value" or "NAV" on a particular date will be equal to (a) the aggregate value of the assets of the Company, less (b) the aggregate value of the liabilities of the Company (the Preferred Shares will not be treated as liabilities for these purposes), including any distributions declared and not paid that are payable to Shareholders on or before such date, less c) the stated capital of the Class J Shares ($200) as described in section 5.0 of this Annual Information Form.
"NI 81-102" means National Instrument 81-102 - Investment Funds of the Canadian Securities Administrators (or any successor policy, rule or national instrument), as it may be amended from time to time.
"NI 81-106" means National Instrument 81-106 - Investment Funds Continuous Disclosure of the Canadian Securities Administrators (or any successor policy, rule or national instrument), as it may be amended from time to time.
"NI 81-107" means National Instrument 81-107 - Independent Review Committee for Investment Funds of the Canadian Securities Administrators (or any successor policy, rule or national instrument), as it may be amended from time to time.
"option premium" means the selling price of an option.
"Ordinary Resolution" means a resolution passed by the affirmative vote of at least 50% of the votes cast, either in person or by proxy, at a meeting of shareholders called for the purpose of approving such resolution.
"out-of-the-money" means in relation to a call option, a call option with a strike price greater than the current market price of the underlying security and, in relation to a put option, a put option with a strike price less than the current market price of the underlying security.
"Portfolio" means the Company's investment portfolio.
"Preferred Shareholder" means a holder of a Preferred Share.
"Preferred Shares" means the preferred shares of the Company.
"put option" means the right, but not the obligation, of the option holder to sell a security to the seller of the option at a specified price at any time during a specified time period or at expiry.
"Quarterly Retraction Date" means the second last business day of February, May, August and November.
"Rebalancing Criteria" means the rebalancing criteria of the Company described in section 1.4 of this Annual Information Form.
"Retraction Date" means the second last business day of a month.
"Retraction Notice" means a notice delivered by a CDS Participant to CDS (at its office in Toronto) on behalf of a Shareholder who desires to exercise his or her retraction privileges.
"Retraction Payment Date" means the date that is on or before the tenth business day in the month following a Retraction Date or Quarterly Retraction date, as applicable.
"Share" means a Preferred Share or a Class A Share and "Shares" means more than one Class A Share and/or Preferred Share.
"Shareholder" means a holder of a Preferred Share or a Class A Share and "Shareholders" means more than one holder of a Preferred Share or Class A Share.
"strike price" means in relation to a call option, the price specified in the option that must be paid by the option holder to acquire the underlying security or, in relation to a put option, the price at which the option holder may sell the underlying security.
"TSX" means the Toronto Stock Exchange.
"Unit" means a notional unit consisting of one Class A Share and one Preferred Share (or one preferred share of any other class so designated by the Company). The number of Units outstanding at any time will be equal to the sum of the number of Preferred Shares (and any preferred shares of any other class so designated by the Company) and Class A Shares then outstanding divided by two.
"volatility" means, in respect of the price of a security, a numerical measure of the tendency of the price to vary over time.
NAME, FORMATION AND HISTORY
The Company is a mutual fund corporation incorporated under the laws of the Province of Ontario on September 25, 2007 with a registered office located at Suite 2930, Bay Wellington Tower, Brookfield Place, 181 Bay Street, Toronto, Ontario, M5J 2T3. The Company was formed pursuant to articles of incorporation. Prior to closing the Company's initial public offering, the Company amended its articles to create the Class A Shares and the Preferred Shares. The Company filed articles of amalgamation on May 18, 2011 in connection with the Company's merger with Brompton Equity Split Corp. ("BE"). The Company is governed by the articles of amalgamation and by-laws of the Company.
On February 6, 2014, pursuant to a treasury offering, the Company issued 1,950,000 Class A Shares and 1,950,000 Preferred Shares. On February 14, 2014, an additional 160,000 Class A Shares and 160,000 Preferred Shares were issued pursuant to the exercise of the agents' over-allotment option in connection with the treasury offering. The total gross proceeds raised by the Company were approximately $41.6 million.
On July 24, 2014, pursuant to a treasury offering, the Company issued 3,505,000 Class A Shares and 3,505,000 Preferred Shares. On July 31, 2014, an additional 145,000 Class A Shares and 145,000 Preferred Shares were issued pursuant to the exercise of the agents' over-allotment option in connection with the treasury offering. The total gross proceeds raised by the Company were approximately $72.9 million.
On September 23, 2014, the Company announced that in connection with the proposal to extend the term of the Shares approved on October 1, 2013, the board of directors approved an extension of the term of the Shares to November 28, 2019, and that the distribution rate on the Preferred Shares would remain unchanged at $0.13125 per Preferred Share, quarterly.
On December 2, 2014, pursuant to a treasury offering, the Company issued 3,200,000 Class A Shares and 4,180,248 Preferred Shares. The total gross proceeds raised by the Company were approximately $72.8 million.
On June 5, 2015, pursuant to a treasury offering, the Company issued 2,200,000 Class A Shares and 2,200,000 Preferred Shares. The total gross proceeds raised by the Company were approximately $41.8 million.
On May 6, 2016, pursuant to a treasury offering, the Company issued 1,357,000 Class A Shares and 1,357,000 Preferred Shares. The total gross proceeds raised by the Company were approximately $23 million.
On September 16, 2016, pursuant to a treasury offering, the Company issued 1,471,150 Class A Shares and 1,471,150 Preferred Shares. The total gross proceeds raised by the Company were approximately $25 million.
On April 6, 2017, pursuant to a treasury offering, the Company issued 4,765,000 Class A Shares and 4,765,000 Preferred Shares. The total gross proceeds raised by the Company were approximately $86 million.
On August 3, 2017, pursuant to a treasury offering, the Company issued 4,125,000 Class A Shares and 4,125,000 Preferred Shares. The total gross proceeds raised by the Company were approximately $74.3 million.
On November 29, 2017, pursuant to a treasury offering, the company issued 4,224,150 Class A Shares and 4,224,150 Preferred Shares. The total gross proceeds raised by the company were approximately $76 million.
On August 29, 2018, the Company received approval at a special meeting of Shareholders of the Company to:
• Amend the Investment Objectives, Investment Guidelines, Investment Restrictions and Rebalancing Criteria;
• Amend the articles of incorporation of the Company to allow it to issue class B shares and class C shares issuable in series;
• Amend the tender date for non-concurrent redemptions;
• To permit a redemption to be made on a pro-rata basis on a non-concurrent retraction;
• Allow for non-matched shares; and
• Amending acts requiring shareholder approval.
On September 28, 2018, the board of directors of the Company announced the extension of the term of the Shares for a period of three to five years.
On September 20, 2019, the board of directors of the Company announced the extension of the term of the Shares to September 27, 2024 and the distribution rate for the Preferred Shares was set at $0.55 per Preferred Share per annum, effective November 29, 2019.
On June 1, 2021, pursuant to a treasury offering, the Company issued 2,109,675 Class A Shares and 2,109,675 Preferred Shares. The total gross proceeds raised by the Company were approximately $34.8 million.
On July 20, 2021, pursuant to a treasury offering, the Company issued 3,649,900 Class A Shares and 3,649,900 Preferred Shares. The total gross proceeds raised by the Company were approximately $62.4 million.
On September 28, 2021, pursuant to a treasury offering, the Company issued 3,606,330 Class A Shares and 3,606,330 Preferred Shares. The total gross proceeds raised by the Company were approximately $60.2 million.
On December 15, 2021, pursuant to a treasury offering, the Company issued 4,548,300 Class A Shares and 4,548,300 Preferred Shares. The total gross proceeds raised by the Company were approximately $76.4 million.
On March 9, 2022, pursuant to a treasury offering, the Company issued 3,989,500 Class A Shares and 3,989,500 Preferred Shares. The total gross proceeds raised by the Company were approximately $67.0 million.
On April 14, 2023, the Company filed a prospectus supplement to the short form base shelf prospectus dated December 7, 2021, relating to a distribution of Class A Shares and Preferred Shares by way of "at-the-market" distributions (the "ATM"). Under the ATM, the Company qualified for issuance Class A Shares having an aggregate market value of $75 million and Preferred Shares having an aggregate market value of up to $75 million. As of January 7, 2024, 0 Class A Shares and 0 Preferred Shares were issued under the ATM. The ATM was terminated as of January 7, 2024.
On March 12, 2024, the board of directors of the Company announced the extension of the term of the Shares from September 27, 2024 to August 30, 2029.
Status of the Company
While the Company is technically considered to be a mutual fund corporation under the securities legislation of certain provinces of Canada, the Company is not a conventional mutual fund and has obtained exemptions from certain requirements of NI 81-102 and NI 81-106.
The Company differs from conventional mutual funds in a number of respects, most notably as follows (i) while the Class A Shares and Preferred Shares of the Company may be surrendered at any time for redemption, the redemption price is payable monthly whereas the securities of most conventional mutual funds are redeemable daily, (ii) the Class A Shares and Preferred Shares of the Company have a stock exchange listing whereas the securities of most conventional mutual funds do not, and (iii) unlike most conventional mutual funds, the Class A Shares and Preferred Shares will not be offered on a continuous basis.
1.2
Investment Objectives
The Company's Investment Objectives are:
a) | to provide holders of Preferred Shares with fixed cumulative preferential quarterly cash |
distributions; | |
b) | to provide holders of Class A Shares with regular monthly cash distributions targeted to be at least |
$0.10 per Class A Share; | |
c) | to return the original issue price to holders of Preferred Shares on the Maturity Date; and |
d) | to provide holders of Class A Shares with the opportunity for growth in net asset value per Class A |
Share. | |
1.3 | Investment Guidelines |
The Company invests, on an approximately equally-weighted basis, in a Portfolio consisting primarily of equity securities of Canadian dividend growth companies. In addition, the Company may hold up to 20% of the total assets of the Portfolio in global dividend growth companies for diversification and improved return potential, at the Manager's discretion. The Manager is responsible for maintaining the Portfolio in accordance with the investment guidelines and rebalancing criteria. The Manager may, at its discretion, selectively write covered call options and cash covered put options from time to time in respect of the equity securities of the issuers included in the Portfolio in order to generate additional distributable income for the Company. Investments selected by the Manager will generally be equal-weighted at the time of investment and after rebalancing the Portfolio, but the Company may, at the Manager's discretion, hold non-equal-weight positions.
In order to qualify for inclusion in the Portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing, each dividend growth company included in the Portfolio must (i) have a market capitalization of at least CDN$2.0 billion; and (ii) have a history of dividend growth or, in the Manager's view, have high potential for future dividend growth.
After applying the above-mentioned criteria, the Manager will select equity securities of dividend growth companies to construct the Portfolio after considering, among other factors (as applicable), each dividend growth company's:
• dividend growth potential (as indicated by historical dividend growth, expected future earnings, revenue and/or dividend growth, dividend payout ratio, and/or dividend policy);
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Dividend Growth Split Corp. published this content on 26 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2024 20:56:22 UTC.
