The beneficial interest in the net assets and net income of the Fund is divided into units of such classes as may be determined by the Manager from time to time. Initially, Class A Units and Class T Units have been authorized for issuance and the Fund is authorized to issue an unlimited number of Units of each class. Each Unit entitles the holder to the same rights and obligations as any other Unitholder of the same class and no Unitholder is entitled to any privilege, priority or preference in relation to any other Unitholder, subject to Unitholders of a class being entitled to redemptions based on the trading price of
the Class T Units or the Net Asset Value per Unit of the particular class, as the case may be, and distributions being different as described below. Each Unitholder is entitled to one vote for each Unit held except for meetings at which only Unitholders of another class are entitled to vote separately as a class and is entitled to participate equally with respect to any and all distributions made by the Fund on a class of Units, including distributions of net realized capital gains or income, if any. On the redemption of Units, however, the Fund may, in its sole discretion, allocate and/or designate as payable to redeeming Unitholders any net realized capital gains realized by the Fund to facilitate the redemption of Units. Any such allocation and designation will reduce the redemption price otherwise payable to the redeeming Unitholder. The monthly distributions are initially targeted to be $0.05 per Class A Unit ($0.60 per annum per Class A Unit) representing an annual yield of 6.0% on the $10.00 per Class A Unit issue price and $0.0583 per Class T Unit ($0.70 per annum per Class T Unit) representing an annual yield of 7.0% on the $10.00 per Class T Unit issue price. On termination or liquidation of the Fund, the Unitholders of record are entitled to receive on a pro rata basis with holders of Units of that class all of the assets of the Fund attributable to that class remaining after payment of all debts, liabilities and liquidation expenses of the Fund.
As the Fund will pay different amounts of distributions on the Class A Units and the Class T Units, the tax characterization of distributions may vary between the two classes.
The Class T Units are designed for fee-based and/or institutional accounts. The Class A Units will not be listed on a stock exchange, but will be convertible into Class T Units on a weekly basis.
Class A Units are intended to be purchased under the Offering by investors who intend to hold their Class A Units for at least thirty-six (36) months with the understanding that an Early Exchange Fee will apply if the Class A Units are converted or redeemed prior to the Automatic Conversion Date. Class A Units will be automatically converted into Class T Units on the Automatic Conversion Date based on their relative NAV per Unit at the time. No Early Exchange Fee is payable with respect to the automatic conversion of the Class A Units on the Automatic Conversion Date.
Though Class A Units are intended for investors who expect to hold their Class A Units until the Automatic Conversion Date, investors may, at their option, convert some or all of their Class A Units into Class T Units on a weekly basis before the end of the thirty-six (36) month period, as well as redeem some or all of their Class A Units under the monthly redemption right. In either case, the Early Exchange Fee will be payable to the Manager. In the case of a conversion of Class A Units, immediately prior to conversion the Fund will redeem such number of Class A Units as is necessary to pay the Early Exchange Fee. In the case of a monthly redemption of Class A Units, the Fund will deduct the Early Exchange Fee from the redemption proceeds otherwise payable to the redeeming Unitholder. The Early Exchange Fee will be remitted by the Fund, on behalf of the Unitholder, to the Manager.
The Declaration of Trust provides that the Fund may not issue additional Units of a class following completion of the Offering except: (i) for net proceeds per Unit of a class of not less than 100% of the most recently calculated Net Asset Value per Unit of such class prior to the pricing of such issuance; or (ii) by way of Unit distributions.
On December 16, 2004, the Trust Beneficiaries’ Liability Act, 2004 (Ontario) came into force. This statute provides that holders of units of a trust are not, as beneficiaries, liable for any act, default, obligation or liability of the trust if, when the act or default occurs or the liability arises: (i) the trust is a reporting issuer under the Securities Act; and (ii) the trust is governed by the laws of Ontario. The Fund will be a reporting issuer under the Securities Act prior to Closing and the Fund is governed by the laws of Ontario by virtue of the provisions of the Declaration of Trust.
Conversion of Class A Units
A holder of Class A Units may convert such Class A Units into Class T Units on a weekly basis and it is expected that liquidity for the Class A Units will be obtained primarily by means of conversion into Class T Units and the sale of such Class T Units through the facilities of the TSX. Class A Units may be converted in any week on the first Business Day of such week (“Conversion Date”) by delivering a notice and surrendering such Class A Units by 5:00 p.m. (Toronto time) at least five Business Days prior to the applicable Conversion Date.
For each Class A Unit so converted, a holder will receive that number of Class T Units that is equal to the NAV per Class A Unit as of the close of trading on the Conversion Date divided by the NAV per Class T Unit as of the close of trading on the Conversion Date. No fractions of a Class T Unit will be issued upon any conversion of Class A Units and any fractional amounts will be rounded down to the nearest whole number of Class T Units.
Any conversion of Class A Units into Class T Units prior to the Automatic Conversion Date will be subject to the Early Exchange Fee payable by the Unitholder per Class A Unit converted equal to: (i) 3% of NAV per Class A Unit from Closing
until and including the last Business Day of the 12th month following Closing; (ii) 2% of NAV per Class A Unit from the first Business day of the 13th month following Closing until and including the last Business Day of the 24th month following Closing; and (iii) 1% of NAV per Class A Unit from the first Business Day of the 25th month following Closing until the Automatic Conversion Date. Immediately prior to conversion, the Fund will redeem such number of Class A Units as is necessary to pay the Early Exchange Fee from the redemption proceeds. The Early Exchange Fee will be remitted by the Fund, on behalf of the holder, to the Manager.
Class A Units will be automatically converted into Class T Units on the Automatic Conversion Date. No Early Exchange Fee will apply when Class A Units are automatically converted into Class T Units on the Automatic Conversion Date.
Based on counsel’s understanding of the current administrative position of the CRA, a conversion of Class A Units into Class T Units will not constitute a disposition of such Class A Units for the purposes of the Tax Act. The redemption of any Class A Unit in order to pay an Early Exchange Fee will generally result in a capital gain (or capital loss) for the redeeming Unitholder. An amount equal to the Early Exchange Fee paid by a Unitholder on a conversion of Class A Units into Class T Units will be added to the cost of the Class T Units received on the conversion.
Registration of Units
Registration of interests in, and transfers of, the Units will be made only through non-certificated interests issued under the book-entry only system of CDS. On the Closing Date, non-certificated interests representing the aggregate number of Units subscribed for under the Offering will be recorded in the name of CDS, or its nominee, on the register of the Fund maintained by the Transfer Agent. Units must be purchased, converted, transferred and surrendered for redemption only through a CDS Participant. All rights of an owner of Units must be exercised through, and all payments or other property to which such owner is entitled will be made or delivered by, CDS or the CDS Participant through which the owner holds such Units. Upon purchase of any Units, the owner will receive only the customary confirmation from the registered dealer which is a CDS Participant (from or through which the Units were purchased). References in this prospectus to a Unitholder means, unless the context otherwise requires, the owner of the beneficial interest in such Units.
The Fund, the Manager and the Agents will not have any liability for (i) records maintained by CDS relating to the beneficial interests in the Units or the book entry accounts maintained by CDS; (ii) maintaining, supervising or reviewing any records relating to such beneficial ownership interests; or (iii) any advice or representation made or given by CDS and made or given with respect to the rules and regulations of CDS or any action taken by CDS or at the direction of the CDS Participants.
The ability of a beneficial owner of Units to pledge such Units or otherwise take action with respect to such owner’s interest in such Units (other than through a CDS Participant) may be limited due to the lack of a physical certificate.
The Fund has the option to terminate registration of the Units through the book-entry only system in which case a certificate for Units in fully registered form will be issued to beneficial owners of such Units or to their nominees.
Voting Rights in the Portfolio Securities
Unitholders will not have any voting rights in respect of the Portfolio Securities.
Mandatory Market Purchase Program
To seek to enhance liquidity and provide market support for the Class T Units, the Fund will have a mandatory market purchase program pursuant to which the Fund will, subject to the following exceptions and compliance with any applicable regulatory requirements, be obligated to purchase any Class T Units offered on the TSX if, at any time, the price at which Class T Units are then offered on the TSX is 98.5% or less of the NAV per Class T Unit as at the close of business in Toronto, Ontario on the immediately preceding Business Day. The Manager will publish the NAV per Class T Unit on the Manager’s website at www.bmocm.com/investorsolutions (under “Closed-End Funds”) each day on which the TSX is open of business.
The maximum number of Class T Units to be purchased by the Fund pursuant to such mandatory market purchase program in any rolling 10 trading day period will be 10% of the number of Class T Units outstanding at the beginning of such 10 trading day period, subject to a limit of 2% of the number of Class T Units outstanding each day and subject to the terms set out in the Declaration of Trust. In addition, the Fund will not be obligated to make such purchases if, among other things: (i) the Manager reasonably believes that the Fund would be required to make an additional distribution in respect of the taxation
will generally not be liable to pay income tax; (ii) in the opinion of the Manager, the Fund lacks the cash, debt capacity or other resources to make such purchases; or (iii) in the opinion of the Manager, such purchases would adversely affect the ongoing activities of the Fund or the remaining Unitholders. In addition, the Fund will have the right (but not the obligation), exercisable in its sole discretion, at any time to purchase additional Class T Units in the market, subject to any applicable regulatory requirements and limitations.
Given the procedures and rules of the TSX relating to the placement of purchase and sell orders and the filling of such orders, and with the objective of avoiding arbitrage in the market detrimental to Unitholders, the Fund may place bids on the Class T Units at 98.5% of the NAV per Class T Unit even if the trading price is lower.
In connection with any market purchases of Class T Units by the Fund, the Fund will pay to the Manager the following amounts as partial compensation for the fees and expenses the Manager paid in connection with the Offering: if the purchase is made at a discount to the then current NAV of the Class T Units purchased, the Fund will pay to the Manager an amount (inclusive of taxes) equal to such discount. The maximum amount that the Manager may be paid in respect of any market purchase is 3.0% of the NAV of the Class T Units purchased. Such amounts will only be paid if the Class T Units purchased by the Fund are cancelled and will not be paid by the Fund once the Manager has received, together with any Early Exchange Fees and Class T Monthly Redemption Fees, an aggregate amount equal to the fees and expenses paid by it in relation to the Offering and any future offerings. To the extent that a purchase is made at a price that is greater than a 3.0% discount to the then current NAV per Class T Unit, the amount of the balance will be accretive to the NAV of the Fund. However, as the purchases made under the mandatory market purchase program are being effected at a maximum of 98.5% of the NAV per Class T Unit (calculated at the latest Valuation Time), they will not be dilutive to the Fund or Unitholders.
Total Return Swap
The Fund may enter into a total return swap (“Swap”) in respect of the Class T Units with an affiliate of a Canadian chartered bank (the “Counterparty”). The Swap is intended to address the discount observed in respect of the trading price of securities of non-redeemable investment funds on the TSX as compared to the net asset value per unit. The Manager expects that the purchases under the Swap will cause the Class T Units to trade closer to their NAV per Class T Unit.
Pursuant to the Swap, the Counterparty would agree to make payments to the Fund based on increases in the trading price of the Class T Units (plus amounts equal to all cash distributions actually received on such Class T Units) in respect of which exposure is obtained by the Counterparty during the term of the Swap, above the price paid for such securities in connection with establishing the Counterparty’s hedge for such payment. The Fund would conversely make payments to the Counterparty if the trading price of the corresponding number of the Class T Units was below the purchase price of such Class T Units all as determined at the time the Swap is reset or terminates.
The Counterparty may hedge its obligations to the Fund by acquiring direct or indirect exposure to the Class T Units. If the Counterparty or an affiliate of the Counterparty hedges its obligations under the Swap, it is anticipated that the Class T Units comprising the hedge will be acquired by the Counterparty or an affiliate of the Counterparty through the facilities of the TSX and that such purchases will cause the Class T Units to trade closer to their NAV per Class T Unit.
Pursuant to the Swap, the Counterparty may purchase through the facilities of the TSX, from time to time, up to 10% of the number of Class T Units outstanding at the time the Swap is entered into.
Take-over Bids
The Declaration of Trust contains provisions to the effect that if a take-over bid is made for the Class T Units and not less than 90% of the aggregate of the Class T Units (but not including any Class T Units held at the date of the take-over bid by or on behalf of the offeror or associates or affiliates of the offeror) are taken up and paid for by the offeror, the offeror will be entitled to acquire the Class T Units held by the Unitholders who did not accept the take-over bid on the terms offered by the offeror.
The Declaration of Trust also provides that if, prior to the termination of the Fund, a formal bid (as defined in the Securities Act) is made for all of the Class A Units and such bid would constitute a formal bid for all Class T Units if the Class A Units had been converted to Class T Units immediately prior to such bid and the other offer does not include a concurrent identical take-over bid, including in terms of price (relative to the NAV per Unit of the class), for the Class T Units then the Fund shall provide the holders of Class T Units the right to convert all or a part of their Class T Units into Class A Units and to tender such Units to the offer. In the circumstances described above, the Fund shall by press release provide written notice to the
holders of the Class T Units that such an offer has been made and of the right of such holders to convert all or a part of their Class T Units into Class A Units and to tender such units to the offer.
UNITHOLDER MATTERS