Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement to obtain the approval of securityholders before changing the fundamental investment objectives of multiple mutual funds -- Relief required as a result of changes to federal budget eliminating certain tax benefits associated with character conversion transactions -- Required to send written notice at least 60 days before the effective date of the change to the investment objectives of the funds setting out the change, the reasons for such change and a statement that the fund expects its future returns to be mainly in the form of taxable income rather than capital gains and will no longer be able to provide tax-advantaged returns after the date by which gains realized by the fund under its forward agreement will be treated as ordinary income rather than a capital gain.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.1(c), 19.1.

November 4, 2014

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO 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 IN THE MATTER OF CAMBRIDGE INCOME CORPORATE CLASS, CAMBRIDGE INCOME FUND, CI GLOBAL HIGH DIVIDEND ADVANTAGE CORPORATE CLASS, CI GLOBAL HIGH DIVIDEND ADVANTAGE FUND, CI SHORT-TERM ADVANTAGE CORPORATE CLASS, SIGNATURE DIVERSIFIED YIELD CORPORATE CLASS, SIGNATURE DIVERSIFIED YIELD FUND, SIGNATURE HIGH YIELD BOND CORPORATE CLASS AND SIGNATURE HIGH YIELD BOND FUND (the Funds)

DECISION

Background

The principal regulator in Ontario has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of Ontario (the Legislation) exempting each Fund from the requirement in section 5.1(c) of National Instrument 81-102 Investment Funds (NI 81-102) to obtain the approval of its securityholders before changing its fundamental investment objective in the manner described herein (the Exemption Sought).

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) the Filer has provided notice that section 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in MI 11-102, NI 81-102 and National Instrument 14-101 Definitions 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:

The Filer

1. The Filer is a corporation incorporated under the laws of the Province of Ontario with its head office located in Toronto, Ontario. The Filer is registered under the securities legislation of the Jurisdictions as follows:

(a) as an investment fund manager in each of Ontario, Québec, and Newfoundland and Labrador;

(b) as a portfolio manager in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador; and

(c) as an exempt market dealer in Ontario.

2. The Filer is not in default of securities legislation in any Jurisdiction.

3. The Filer is the manager of each Fund and each Reference Fund (as defined below).

The Funds

4. Each of Cambridge Income Fund, CI Global High Dividend Advantage Fund, Signature Diversified Yield Fund and Signature High Yield Bond Fund is a trust governed by an amended and restated master declaration of trust dated April 2, 2007 (as amended from time to time, the Declaration of Trust) and of which the Filer is the trustee.

5. Each of Cambridge Income Corporate Class, CI Global High Dividend Advantage Corporate Class, CI Short-Term Advantage Corporate Class, Signature Diversified Yield Corporate Class and Signature High Yield Bond Corporate Class is comprised of one or more classes of shares of CI Corporate Class Limited, a corporation incorporated under the Business Corporations Act (Ontario) on July 8, 1987.

6. Each Fund is a "mutual fund", as such term is defined under the Securities Act (Ontario) (the Act), and to which National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) and NI 81-102 apply.

7. Each Fund previously offered securities qualified for distribution in the Jurisdictions pursuant to a simplified prospectus (the Prospectus) and is a reporting issuer under the securities legislation of each Jurisdiction.

8. None of the Funds are in default of securities legislation in any Jurisdiction.

9. The current fundamental investment objective (the Current Objective) of each Fund, as disclosed in its most recent Prospectus, is as set out opposite its name in Appendix "A" hereto.

10. In order to seek to achieve its Current Objective, each Fund currently is a party to a forward purchase and sale agreement (each a Forward Agreement) with a Canadian chartered bank. Each Forward Agreement provides the Fund which is a party to it with exposure to the returns of the securities of another investment fund (a Reference Fund) or a portfolio of securities (a Reference Portfolio). The Reference Fund or Reference Portfolio of each Fund, together with the fundamental investment objective of each Reference Fund or a description of the Reference Portfolio, as applicable, is described in Appendix "A" hereto. Under its Forward Agreement, the Fund has agreed to purchase or sell a portfolio of securities (or portions thereof) from or to the counterparty based on a value that is determined by reference to the value of its Reference Fund or Reference Portfolio. Though the Reference Fund or Reference Portfolio generates returns consisting primarily of ordinary income, the Fund treats the gains or losses on the dispositions of its securities as capital gains and losses. Ordinary income is subject to tax at a higher rate in Canada than capital gains.

11. Other than CI Global High Dividend Advantage Corporate Class and CI Global High Dividend Advantage Fund (which do not have exposure to a Reference Fund):

(a) the name of each Fund includes part of the name of its Reference Fund; and

(b) every past Prospectus of each Fund disclosed the name of its Reference Fund as part of the investment strategies of the Fund.

12. The Forward Agreements of CI Global High Dividend Advantage Corporate Class and CI Global High Dividend Advantage Fund provide exposure to a Reference Portfolio which was described as part of the investment strategies in every past Prospectus of such Funds.

The Reference Funds

13. Each Reference Fund is a trust governed by the Declaration of Trust and of which the Filer is the trustee.

14. Each Reference Fund is a "mutual fund", as such term is defined under the Act, and to which NI 81-101 and NI 81-102 apply.

15. Each Reference Fund previously offered securities qualified for distribution in the Jurisdictions pursuant to a simplified prospectus and is a reporting issuer under the securities legislation of each Jurisdiction.

16. None of the Reference Funds are in default of securities legislation in any Jurisdiction.

17. The current fundamental investment objective of each Reference Fund, as disclosed in its most recent Prospectus, is as set out opposite its name in Appendix "A" hereto.

The Budget Proposals

18. On March 21, 2013, the Federal Minister of Finance announced proposals in a Federal Budget (as subsequently clarified in draft legislation to implement the Federal Budget, the Budget Proposals) that, after a prescribed date (the Changeover Date), will treat the gain realized by each Fund under its Forward Agreement as ordinary income rather than a capital gain and thereby eliminate each Fund's tax efficiency from the use of its Forward Agreement. The Changeover Date is the earlier of:

(a) the date on which the Forward Agreement of the Fund will terminate in accordance with its terms; and

(b) March 21, 2018.

The Changeover Date of each Fund is set out in Appendix "A" hereto and, for each Fund, will occur prior to March 21, 2018. The Budget Proposals also effectively preclude each Fund from increasing the amount of exposure it has under its Forward Agreement to its Reference Fund or Reference Portfolio.

19. On April 12, 2013, the Filer issued a press release announcing that each Fund would be closed to new investments effective April 15, 2013 since each Fund would no longer be able to increase the amount of exposure it has under its Forward Agreement to its Reference Fund or Reference Portfolio. Each Fund also filed a material change report on April 19, 2013 and amended its then current Prospectus and Fund Facts to reflect the announcement. Each Fund remains closed to new investors.

Reasons for the Exemption Sought

20. The Filer has determined that, as a result of the Budget Proposals, it would be more efficient and less costly for each Fund to seek to achieve its fundamental investment objective after its Changeover Date by investing its assets in:

(a) securities of its Reference Fund or Reference Portfolio, as applicable;

(b) portfolio securities; or

(c) a combination of the above,

rather than continuing to utilize its Forward Agreement. The combination of investments to be held by each Fund from time to time will depend mainly upon the approach which achieves the most efficient portfolio management at that time.

21. In response to the Budget Proposals, the Filer proposes to change the fundamental investment objective of each Fund to the revised fundamental investment objective (the Revised Objective) set out opposite the name of the Fund in Appendix "A" hereto within 10 days after its Changeover Date in order to remove the references to tax efficiency and the use of a Forward Agreement.

22. After each Fund changes to its Revised Objective, it will continue to have exposure, through direct investments, to the same securities to which it currently has indirect exposure through its Forward Agreement. Accordingly, other than for the loss of tax-efficiency resulting from the Budget Proposals, each Fund will have the same investment attributes under its Revised Objective as exist under its Current Objective.

23. The board of directors of the Manager and the independent review committee of the Funds have approved the changes to each Fund's fundamental investment objective from its Current Objective to its Revised Objective.

24. The Filer believes that each Fund's change to its Revised Objective will not affect its risk profile or its suitability for its existing securityholders.

25. At least 60 days prior to changing to its Revised Objective, each Fund will send a written notice (the Notice) to all of its securityholders that sets out the Revised Objective of the Fund, the reasons for changing the fundamental investment objective of the Fund, and a statement that the Fund expects its future returns to be mainly in the form of taxable income rather than capital gains and will no longer be able to provide tax-advantaged returns after the Changeover Date.

26. The Filer will treat each Fund's change to its Revised Objective as a material change to the Fund and will comply with the "material change reporting" requirements set out in Part 11 of National Instrument 81-106 -- Investment Fund Continuous Disclosure.

27. With the Notice and the material change disclosure, securityholders of each Fund will be in a fully informed position to make an investment decision relating to their continuing participation in the Fund after it changes to its Revised Objective and will have adequate notice to redeem their securities of the Fund if they are not in favour of the change.

28. Each Fund will remain closed to new investments until its fundamental investment objective is changed to its Revised Objective. Thereafter, the Fund may recommence distributing its securities pursuant to a simplified prospectus, annual information form and fund facts which describe the Fund's Revised Objectives and related investment strategies.

29. The Filer has determined that it would be in the best interests of the Funds and not prejudicial to the public interest to receive the Exemption Sought.

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 Exemption Sought is granted provided that at least 60 days prior to the effective date of the change to the Fund's investment objective, the Filer, on behalf of the Fund, sends a written notice to all of its securityholders that sets out the Revised Objective of the Fund, the reasons for changing the fundamental investment objective of the Fund, and a statement that the Fund expects its future returns to be mainly in the form of taxable income rather than capital gains and will no longer be able to provide tax-advantaged returns after the Changeover Date.

"Vera Nunes"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission

 

Appendix "A"

Fund and Current Objective

Reference Fund / Reference Portfolio and Fundamental Investment Objective / Portfolio Description

Revised Objective of Fund

Changeover Date

 

Cambridge Income Corporate Class:

Cambridge Income Trust:

 

 

The Fund's objective is to achieve tax-efficient returns through exposure to a portfolio of fixed income and high-yielding equity securities throughout the world. The Fund will obtain this exposure primarily through a reference fund by entering into derivatives, but may hold fixed income and equity securities directly from time to time.

The objective of Cambridge Income Trust is to generate income by investing in a portfolio of fixed income and high-yielding equity securities throughout the world.

The Fund's objective is to generate income by investing, directly or indirectly, in fixed income and high-yielding equity securities throughout the world. Indirect investments can include derivatives and investments in other mutual funds.

January 24, 2017

 

Cambridge Income Fund:

Cambridge Income Trust:

 

 

The Fund's objective is to achieve tax-efficient returns through exposure to a portfolio of fixed income and high-yielding equity securities throughout the world. The Fund will obtain this exposure primarily through a reference fund by entering into derivatives, but may hold fixed income and equity securities directly from time to time.

The objective of Cambridge Income Trust is to generate income by investing in a portfolio of fixed income and high-yielding equity securities throughout the world.

The Fund's objective is to generate income by investing, directly or indirectly, in fixed income and high-yielding equity securities throughout the world. Indirect investments can include derivatives and investments in other mutual funds.

January 24, 2017

 

CI Global High Dividend Advantage Corporate Class:

Reference Portfolio:

 

 

This Fund's objective is to achieve tax-efficient returns through exposure primarily to dividend-paying common and preferred shares, debentures, income trusts, equity-related securities and convertible securities of issuers anywhere in the world that are expected to generate a consistently high level of dividends and interest income. The Fund may achieve such exposure through the use of derivatives and investments in other mutual funds.

The Forward Agreement provides exposure to one or more baskets of securities, also called "equity baskets", consisting primarily of dividend-paying common and preferred shares, debentures, income trusts, equity-related securities and convertible securities of issuers anywhere in the world, together with the earnings thereon.

The Fund's objective is to generate a consistently high level of dividend and interest income by investing, directly or indirectly, primarily in dividend-paying common and preferred shares, debentures, income trusts, equity-related securities and convertible securities of issuers anywhere in the world. Indirect investments can include derivatives and investments in other mutual funds.

December 16, 2014

 

CI Global High Dividend Advantage Fund:

Reference Portfolio:

 

 

This Fund's objectives are to provide investors with a stable stream of tax efficient monthly distributions, consisting mostly of capital gains and returns of capital, and endeavour to preserve and enhance the net asset value of the Fund. In order to achieve its objectives, the Fund invests, directly or indirectly, primarily in dividend-paying common and preferred shares, debentures, income trusts, equity-related securities and convertible securities issued by issuers anywhere in the world. The Fund will enter into one or more derivatives to obtain exposure to dividend-paying common and preferred shares, debentures, income trusts, equity related securities and convertible securities issued by issuers anywhere in the world, together with the earnings thereon.

The Forward Agreement provides exposure to one or more baskets of securities, also called "equity baskets", consisting primarily of dividend-paying common and preferred shares, debentures, income trusts, equity-related securities and convertible securities of issuers anywhere in the world, together with the earnings thereon.

The Fund's objective is to generate a consistently high level of dividend and interest income while preserving capital by investing, directly or indirectly, primarily in dividend-paying common and preferred shares, debentures, income trusts, equity-related securities and convertible securities of issuers anywhere in the world. Indirect investments can include derivatives and investments in other mutual funds.

December 16, 2014

 

CI Short-Term Advantage Corporate Class:

CI Short-Term Advantage Trust:

 

 

This Fund's objective is to achieve tax-efficient returns that are similar to those of money market instruments in Canada and other developed countries while preserving capital. In order to achieve its objectives, the Fund's investments will be made primarily through investments in other mutual funds, either directly or by entering into derivatives, and the Fund may directly hold securities.

The objective of CI Short-Term Advantage Trust is to achieve returns that are similar to those of money market instruments in Canada and other developed countries while preserving capital. In order to achieve its objectives, CI Short-Term Advantage Trust invests primarily in money market instruments issued in Canada and other developed countries.

The Fund's objective is to achieve returns that are similar to those of money market instruments in Canada and other developed countries while preserving capital. In order to achieve its objectives, the Fund will invest, directly or indirectly, primarily in money market instruments issued in Canada and other developed countries. Indirect investments can include derivatives and investments in other mutual funds.

December 22, 2014

 

Signature Diversified Yield Corporate Class:

Signature Diversified Yield Trust:

 

 

This Fund's objective is to achieve tax-efficient returns through exposure to a portfolio of fixed income and high-yielding equity securities throughout the world. The Fund will obtain this exposure primarily by entering into derivatives, but may hold fixed income and equity securities directly from time to time.

The objective of Signature Diversified Yield Trust is to generate a high level of income through exposure to a portfolio of fixed income and high-yielding equity securities throughout the world.

The Fund's objective is to generate a high level of income by investing, directly or indirectly, in fixed income and high-yielding equity securities throughout the world. Indirect investments can include derivatives and investments in other mutual funds.

December 16, 2014

 

Signature Diversified Yield Fund:

Signature Diversified Yield Trust:

 

 

This Fund's objective is to achieve tax-efficient returns through exposure to a portfolio of fixed income and high-yielding equity securities throughout the world. The Fund will obtain this exposure primarily by entering into derivatives, but may hold fixed income and equity securities directly from time to time.

The objective of Signature Diversified Yield Trust is to generate a high level of income through exposure to a portfolio of fixed income and high-yielding equity securities throughout the world.

The Fund's objective is to generate a high level of income by investing, directly or indirectly, in fixed income and high-yielding equity securities throughout the world. Indirect investments can include derivatives and investments in other mutual funds.

December 16, 2014

 

Signature High Yield Bond Corporate Class:

Signature High Yield Bond II Fund:

 

 

The Fund's objective is to obtain income and capital appreciation through exposure to high yield corporate bonds and other income-producing securities throughout the world. The Fund will obtain this exposure primarily through a reference fund by entering into derivatives, but may hold fixed income and equity securities directly from time to time.

The objective of Signature High Yield Bond II Fund is to obtain income and capital appreciation by investing in high yield corporate bonds and other income-producing securities throughout the world.

The Fund's objective is to obtain income and capital appreciation by investing, directly or indirectly, in high yield corporate bonds and other income-producing securities throughout the world. Indirect investments can include derivatives and investments in other mutual funds.

January 24, 2017

 

Signature High Yield Bond Fund:

Signature High Yield Bond II Fund:

 

 

The Fund's objective is to obtain income and capital appreciation through exposure to high yield corporate bonds and other income-producing securities throughout the world. The Fund will obtain this exposure primarily through a reference fund by entering into derivatives, but may hold fixed income and equity securities directly from time to time.

The objective of Signature High Yield Bond II Fund is to obtain income and capital appreciation by investing in high yield corporate bonds and other income-producing securities throughout the world.

The Fund's objective is to obtain income and capital appreciation by investing, directly or indirectly, in high yield corporate bonds and other income-producing securities throughout the world. Indirect investments can include derivatives and investments in other mutual funds.

January 24, 2017