Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers that do not meet criteria for preapproval -- mergers have different investment objectives -- certain mergers not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- certain mergers involve different fee structures -- securityholders of terminating funds provided with timely and adequate disclosure regarding the mergers.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, s. 5.5(1)(b), 5.6(1), 5.7(1)(b).

September 2, 2010

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

CI INVESTMENTS INC.

(the Filer)

AND

SELECT INCOME MANAGED CORPORATE CLASS

SELECT 100i MANAGED PORTFOLIO CORPORATE CLASS

INSTITUTIONAL MANAGED INCOME POOL

INSTITUTIONAL MANAGED CANADIAN EQUITY POOL

INSTITUTIONAL MANAGED US EQUITY POOL

INSTITUTIONAL MANAGED INTERNATIONAL EQUITY POOL

ARTISAN CANADIAN T-BILL PORTFOLIO

ARTISAN MOST CONSERVATIVE PORTFOLIO

ARTISAN CONSERVATIVE PORTFOLIO

ARTISAN MODERATE PORTFOLIO

ARTISAN GROWTH PORTFOLIO

ARTISAN HIGH GROWTH PORTFOLIO

ARTISAN MAXIMUM GROWTH PORTFOLIO

ARTISAN NEW ECONOMY PORTFOLIO

(each a Terminating Fund and, collectively,

the Terminating Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval of the mergers (collectively, the Mergers and individually, a Merger) of each Terminating Fund into its Continuing Fund (as defined below) pursuant to subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) (the Approval Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

1. the Ontario Securities Commission is the principal regulator for this application; and

2. the 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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the Non-Principal Jurisdictions).

Interpretation

Terms defined 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:

1. The Filer is a corporation amalgamated under the laws of Ontario. The Filer is registered under the Securities Act (Ontario) as an adviser in the category of portfolio manager and as an exempt market dealer. The Filer is the manager of each Terminating Fund and Continuing Fund (collectively, the Funds and, individually, a Fund).

2. Each Fund is a reporting issuer under the Legislation. Neither the Filer nor any of the Funds are in default of securities legislation in the Jurisdiction or in any of the Non-Principal Jurisdictions. Each Fund is a mutual fund that is subject to the requirements of NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure.

3. The Filer proposes to merge each Terminating Fund into the mutual fund (collectively, the Continuing Funds and, individually, a Continuing Fund) shown below opposite the name of the Terminating Fund:

Terminating Fund

Continuing Fund

 

Select Income Managed Corporate Class

Select Income Advantage Managed Corporate Class

 

Select 100i Managed Portfolio Corporate Class

Select Income Advantage Managed Corporate Class

 

Institutional Managed Income Pool

Select Income Advantage Managed Corporate Class

 

Institutional Managed Canadian Equity Pool

Select Canadian Equity Managed Corporate Class

 

Institutional Managed US Equity Pool

Select U.S. Equity Managed Corporate Class

 

Institutional Managed International Equity Pool

Select International Equity Managed Corporate Class

 

Artisan Canadian T-Bill Portfolio

CI Money Market Fund

 

Artisan Most Conservative Portfolio

Portfolio Series Conservative Fund

 

Artisan Conservative Portfolio

Portfolio Series Conservative Balanced Fund

 

Artisan Moderate Portfolio

Portfolio Series Balanced Fund

 

Artisan Growth Portfolio

Portfolio Series Balanced Growth Fund

 

Artisan High Growth Portfolio

Portfolio Series Growth Fund

 

Artisan Maximum Growth Portfolio

Portfolio Series Maximum Growth Fund

 

Artisan New Economy Portfolio

Portfolio Series Maximum Growth Fund

4. The Filer believes that the Mergers will be beneficial to securityholders of each Fund for the following reasons:

(a) it is expected that each Merger will reduce duplication and redundancy;

(b) in the case of the Mergers involving Select Income Managed Corporate Class, Select 100i Managed Portfolio Corporate Class and Institutional Managed Income Pool, investors in the Terminating Fund will become investors in a Continuing Fund that utilizes a more tax-efficient approach to pursuing its investment objective;

(c) in the case of the Mergers involving Institutional Managed Income Pool, Institutional Managed Canadian Equity Pool, Institutional Managed US Equity Pool and Institutional Managed International Equity Pool, investors in the Terminating Fund will become investors in CI Corporation Class Limited (the Corporation) which will provide investors with the opportunity to change mutual fund investments while deferring the realization of any capital gains on their investments;

(d) following the Mergers, each Continuing Fund will have more assets, thereby allowing for increased portfolio diversification opportunities and a smaller proportion of assets set aside to fund redemptions; and

(e) each Continuing Fund will benefit from its larger profile in the marketplace.

5. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Filer presented the Mergers to the independent review committee of the Funds (the IRC) for its review. The IRC determined that the decision of the Filer to proceed with the Mergers:

(a) has been proposed by the Filer free from any influence by an entity related to the Filer and without taking into account any consideration relevant to an entity related to Filer;

(b) represents the business judgement of the Filer uninfluenced by considerations other than the best interest of the Funds;

(c) is in compliance with the Filer's written policies and procedures relating to the Mergers; and

(d) achieves a fair and reasonable result for the Funds.

6. Due to the different structures of the Funds, the procedures for implementing the Mergers will vary. However, the result of each Merger will be that investors in each Terminating Fund will cease to be securityholders in the Terminating Fund and will become securityholders in its Continuing Fund.

7. The proposed Mergers were announced in:

(a) a press release dated June 11, 2010;

(b) a material change report dated June 14, 2010;

(c) amendments dated June 11, 2010 to the current simplified prospectuses and annual information forms of the Terminating Funds; and

(d) a press release dated August 13, 2010,

each of which has been filed on SEDAR.

8. The Filer is convening a special meeting (each, a Meeting and, collectively, the Meetings) of the securityholders of each Terminating Fund in order to seek the approval of the securityholders of each Terminating Fund to complete its Merger, as required by subsection 5.1(f) of NI 81-102. The Meetings will be held on September 17, 2010. In connection with the Meetings, the Filer mailed to securityholders of each Terminating Fund a notice of meeting and management information circular (the Circular), a related form of proxy and the simplified prospectus of its Continuing Fund (collectively, the Meeting Materials) on August 27, 2010 and filed these items on SEDAR on August 26, 2010.

9. If all required approvals for a Merger are obtained, it is intended that the Mergers will occur after the close of business on or about September 17, 2010 (the Effective Date). Each Terminating Fund that completes its Merger will be wound-up as soon as reasonably possible following the Effective Date.

10. The Filer has concluded that the Mergers involving Select Income Advantage Managed Corporate Class as the Continuing Fund, will be material to such Continuing Fund as it is newly formed and has no assets other its initial seed capital. Accordingly, the Mergers of Select Income Managed Corporate Class, Select 100i Managed Portfolio Corporate Class and Institutional Managed Income Pool as Terminating Funds, into Select Income Advantaged Managed Corporate Class as the Continuing Fund, will not be implemented unless such Mergers also are approved by the sole shareholder of Select Income Advantaged Managed Corporate Class as the Continuing Fund, pursuant to section 5.1(g) of NI 81-102, prior to their implementation.

11. All costs of implementing the Mergers (consisting primarily of proxy solicitation, printing, mailing, legal and regulatory fees) will be borne by the Filer.

12. Securityholders of each Terminating Fund will continue to have the right to redeem their securities of the Terminating Fund at any time up to the close of business on the Effective Date. Following each Merger, all optional plans (including pre-authorized purchase programs, automatic withdrawal plans, systematic switch programs and automatic rebalancing services) which were established with respect to the Terminating Fund will be re-established in comparable plans with respect to its Continuing Fund unless investors advise otherwise.

13. In the opinion of the Filer, each Merger satisfies all of the criteria for pre-approved reorganizations and transfers set forth in section 5.6(1) of NI 81-102, except as follows:

(a) the Mergers involving Artisan Most Conservative Portfolio, Artisan Conservative Portfolio, Artisan Moderate Portfolio, Artisan Growth Portfolio, Artisan High Growth Portfolio, Artisan Maximum Growth Portfolio and Artisan New Economy Portfolio will not be implemented as either a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada) (the Tax Act) or a tax-deferred transaction under section 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act (in each case, a Prescribed Rollover). Consequently, these Mergers will not meet the criteria for pre-approved reorganizations and transfers under subsection 5.6(1)(b) of NI 81-102;

(b) current Canadian tax laws do not permit the Mergers involving Institutional Managed Income Pool, Institutional Managed Canadian Equity Pool, Institutional Managed U.S. Equity Pool and Institutional Managed International Equity Pool to be implemented as a "qualifying exchange" (within the meaning of section 132.2 of the Tax Act) and certain other aspects of these Mergers will trigger the realization of taxable capital gains for the Terminating Fund and/or its Continuing Fund. Consequently, these Mergers may not meet the criteria for pre-approved reorganizations and transfers under subsection 5.6(1)(b) of NI 81-102;

(c) in the opinion of the Filer, a reasonable person may not consider the investment objectives of each of Select Income Managed Corporate Class, Select 100i Managed Portfolio Corporate Class, Institutional Managed Income Pool, Artisan Canadian T-Bill Portfolio, Artisan Most Conservative Portfolio, Artisan Conservative Portfolio, Artisan Moderate Portfolio, Artisan Growth Portfolio, Artisan High Growth Portfolio, Artisan Maximum Growth Portfolio and Artisan New Economy Portfolio to be substantially similar to the investment objectives of their respective Continuing Funds. Accordingly, such Mergers may not meet the criteria for pre-approved reorganizations and transfers under subsection 5.6(1)(a)(ii) of NI 81-102;

(d) in the opinion of the Filer, a reasonable person may not consider the fee structures of each of Artisan Most Conservative Portfolio and Artisan Conservative Portfolio to be substantially similar to their respective Continuing Funds. Accordingly, such Mergers may not meet the criteria for pre-approved reorganizations and transfers under subsection 5.6(1)(a)(ii) of NI 81-102; and

(e) in connection with all Mergers, the most recent annual financial statements of the Continuing Fund and any interim financial statements filed after such annual financial statements or, in the case of Select Income Advantage Managed Corporate Class, its statement of net assets as of July 14, 2010, (the Financial Statements) will not be sent to securityholders of the Terminating Fund as required by subsection 5.6(1)(f)(ii) of NI 81-102 but, instead, the Filer will prominently disclose in the Meeting Materials that sent to securityholders of the Terminating Fund that they can obtain such Financial Statements by contacting the Filer at a toll-free number, by e-mail to the Filer, or from the internet at www.sedar.com or the Filer's website.

14. In connection with the Mergers described in paragraph 13(a), the Circular explains that such Mergers will not be implemented as a Prescribed Rollover because:

(a) the Filer anticipates that such Mergers will not give rise to any material adverse tax consequences for the Terminating Funds or their investors; and

(b) each Continuing Fund in these Mergers has significant unutilized loss carryforwards that would be lost if these Mergers were completed as a Prescribed Rollover.

15. In connection with the Mergers described in paragraph 13(b), taxable securityholders of these Terminating Funds who would otherwise realize a capital gain as a result of their Merger will be provided the opportunity to make a joint election (a Section 85 Election) with the Corporation under subsection 85(1) of the Tax Act in order that such securityholders may dispose of their securities of their Terminating Fund on a tax-deferred basis. Details regarding completing and submitting the Section 85 Election will be contained in a tax information package that will be available to such taxable securityholders from their financial advisors and by contacting the Filer at a toll-free number, by e-mail to the Filer, or from the Filer's website.

16. On November 25, 2004, in connection with a prior fund merger and all future mergers of mutual funds managed by the Filer or an affiliate of the Filer (the Future Mergers), the Filer received an exemption from the requirement in paragraph 5.6(1)(f)(ii) of NI 81-102 to deliver the most recent annual and interim financial statements of the continuing fund to securityholders of the terminating funds (the Financial Statement Delivery Requirement) in connection with all Future Mergers (this relief is collectively, the Financial Statement Delivery Relief).

17. The Financial Statement Delivery Relief requires that, except for the Financial Statement Delivery Requirement, any Future Merger otherwise fully comply with the requirements of section 5.6 of NI 81-102. For the reasons set out in Representation 13 above, the Mergers cannot fully comply with the conditions of section 5.6 of NI 81-102.

18. In accordance with the remaining conditions of the Financial Statement Delivery Relief, however,

(a) the Circular sent to securityholders of the Terminating Funds in connection with the Mergers provides sufficient information about the Mergers to permit securityholders to make an informed decision about the Mergers;

(b) the Circular sent to securityholders of the Terminating Funds prominently discloses that securityholders of the Terminating Funds can obtain the Financial Statements of its Continuing Fund by contacting the Filer at a toll-free number, by e-mail to the Filer, or from the internet at www.sedar.com or the Filer's website;

(c) upon request by a securityholder for the Financial Statements of a Continuing Fund, the Filer will make its best efforts to provide the securityholder with such Financial Statements before the securityholder meeting so that the securityholder can make an informed decision concerning the Merger involving such Continuing Fund; and

(d) each Terminating Fund and Continuing Fund have an unqualified audit report in respect of their last completed financial period.

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 under the Legislation is that the Approval Sought is granted.

"Darren McKall"
Assistant Manager, Investment Funds
Ontario Securities Commission