NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund mergers -- approval required because mergers do not meet the criteria for pre-approval --
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.5(3), 5.6.
May 27, 2015
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 INVESCO CANADA LTD. (the "Filer") AND IN THE MATTER OF TRIMARK NORTH AMERICAN ENDEAVOUR CLASS (the "Terminating Fund")
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for approval under subsection 5.5(1)(b) of National Instrument 81-102 Investment Fund Distributions ("NI 81-102") to merge (the "Proposed Merger") the Terminating Fund into Trimark U.S. Companies Class (the "Continuing Fund", and together with the Terminating Fund, the "Funds").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator (the "Principal Regulator") for this application; and
(ii) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is 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 "Other Jurisdictions") .
Defined terms contained in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.
This Decision is based on the following facts represented by the Filer on behalf of the Funds:
1. The Filer is:
(a) is a corporation amalgamated under the laws of Ontario;
(b) is an indirect wholly-owned subsidiary of Invesco Ltd., a global investment manager;
(c) has its head office in Toronto, Ontario;
(d) is registered as an investment fund manager in Ontario and is the investment fund manager of the Funds; and
(e) is not in default of applicable securities legislation in any jurisdiction.
2. Each Fund is a separate class of Corporate Class, a mutual fund corporation amalgamated under articles of amalgamation under the laws of Ontario on April 1, 2014.
3. Shares of the Funds are currently qualified for sale by simplified prospectus, annual information form and fund facts documents dated July 30, 2014, as amended, which have been filed and accepted in all of the provinces and territories of Canada.
4. Each of the Funds is a reporting issuer under applicable securities legislation of each province and territory of Canada and is not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Principal Regulator or any securities regulatory authorities in the Other Jurisdictions.
5. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each Fund complies with and follows the standard investment restrictions and practices under NI 81-102.
6. The Funds have substantially similar valuation procedures.
7. The net asset value for each series of a Fund is calculated on a daily basis on each day that The Toronto Stock Exchange is open for trading.
8. Each of the Funds is a qualified investment for registered retirement savings plan (including a locked-in retirement account, locked-in retirement savings plan and restricted locked-in savings plan), registered retirement income fund (including a life income fund, locked-in retirement income fund, prescribed retirement income fund and restricted life income fund), deferred profit sharing plan, registered disability savings plan, registered education savings plan and tax-free savings account ("Registered Plans").
9. Pre-approval of the Proposed Mergers under section 5.6 of NI 81-102 is not available in the case of the Proposed Merger because a reasonable person would not consider the fundamental investment objectives of the Funds to be substantially similar. Except as described above, the Proposed Merger meets all of the other criteria for pre-approved reorganizations and transfers under section 5.6 of NI 81-102.
10. The Proposed Merger will not constitute a material change for the Continuing Fund.
11. The Filer has determined that the Proposed Merger is in the best interests of the Funds because investors will benefit from the lower management expense ratio, lower risk rating and better historical returns of the Continuing Fund.
12. The Independent Review Committee of the Funds (the "IRC") reviewed the Proposed Merger on May 21, 2015, and made a positive recommendation with respect to the Proposed Merger, having determined that the Proposed Merger, if implemented, achieves a fair and reasonable result for each Fund. The decision of the IRC will be included in the management information circular as required by section 5.1(2) of National Instrument 81-107 -- Independent Review Committee for Investment Funds.
13. A press release announcing the Proposed Merger, among other things, was issued on May 21, 2015, following the meeting of the board of Corporate Class. A material change report and amendments to the simplified prospectus, annual information form and fund facts of the Funds relating to the Proposed Merger have been filed via SEDAR on May 21, 2015.
14. A Notice of Meeting, Management Information Circular and Proxies in connection with the meeting of shareholders will be mailed to shareholders of the Terminating Fund in June 2015 and will be filed via SEDAR.
15. The Management Information Circular will contain the following disclosure so that securityholders of the Terminating Fund can consider the information prior to voting on the Proposed Merger:
a. the differences between the Terminating Fund and Continuing Fund;
b. the management fees of the Continuing Fund;
c. the tax implications of the Proposed Merger;
d. a statement that the securities of the Continuing Funds acquired by securityholders following the Proposed Merger are subject to the same redemption charges to which their securities of the Terminating Fund were subject prior to the Proposed Merger;
e. a statement that any redemption fees payable in connection with securities purchased under the deferred sales charge option will apply when securityholders redeem securities of the Terminating Fund; and
f. the fact that securityholders can obtain, at no cost, the annual information form, most recently filed fund facts, the most recent interim and annual financial statements, most recent management report of fund performance that have been made public by contacting the Manager or by accessing the documents on the Manager's website.
16. The Management Information Circular will also contain the applicable most recently filed fund facts document of the Continuing Fund for each investor. Shareholders of the Terminating Fund will be asked to approve the Proposed Merger at a meeting to be held on July 21, 2015 (the "Meeting").
17. The Terminating Fund is expected to merge into the Continuing Fund on or about the close of business August 7, 2015 (the "Merger Date") and the Continuing Fund will continue as publicly offered open-end mutual funds governed by the laws of Ontario.
18. The Filer will be seeking approval of the Proposed Merger by the holders of all of the issued and outstanding common shares of Corporate Class, which are currently held by Invesco Corporate Class Voting Trust I, Invesco Corporate Class Voting Trust II, Invesco Corporate Class Voting Trust III and Invesco Corporate Class Voting Trust IV, as required under the Business Corporations Act (Ontario).
19. Shareholders of the Terminating Fund will continue to have the right to redeem the shares of the Terminating Fund for cash at any time up to the close of business on the Merger Date. Effective close of business on July 31, 2015, the Terminating Fund will cease distribution of securities (including purchases under existing pre-authorized chequing plans which will run in the Continuing Fund on the first business day following the Merger Date). Following implementation of the Proposed Merger, all systematic investment programs and systematic withdrawal programs that had been established with respect to the Terminating Fund, will be re-established on a series-for-series basis in the Continuing Fund unless shareholders advise the Applicant otherwise. Shareholders may change or cancel any systematic program at any time.
20. Shareholders of the Terminating Fund will receive securities in the same series of the Continuing Fund as they currently own in the Terminating Fund. Shareholders will also receive shares in U.S. dollars if shares of the Terminating Fund were held in U.S. dollars.
21. No sales charges will be payable in connection with the acquisition by the Continuing Fund of the investment portfolio of the Terminating Fund.
22. The Proposed Merger will be a tax deferred transaction under subsection 86(1) of the Income Tax Act (Canada).
23. The Filer will pay for the costs of the Proposed Merger. These costs consist mainly of brokerage charges associated with the trades that occur both before and after the Merger Date and legal, proxy solicitation, printing, mailing and regulatory fees.
24. The Proposed Merger will be structured as follows:
a. The Filer anticipates that there will be a period of approximately three weeks between the Meeting and the Merger Date. If all necessary approvals are obtained, prior to the date of the Proposed Merger, the Terminating Fund will liquidate all of the assets in its portfolio that the Applicant, acting in its capacity as portfolio manager of the Continuing Fund, does not wish to have in the Continuing Fund's portfolio. The Terminating Fund may hold the proceeds in cash, money market instruments or securities of affiliated money market funds. While it is expected that most of these changes will occur closer to the Merger Date than the date of the Meeting, the Terminating Fund may not be fully invested in accordance with its investment objectives for a brief period of time prior to the completion of the Proposed Merger.
b. The Terminating Fund will satisfy or otherwise make provisions for any liabilities attributable to it out of the assets attributable to it prior to the Merger Date. In addition, the value of the underlying portfolio of assets attributable to the Terminating Fund will be determined at the close of business on the effective date of the filing of the articles of amendment of Corporate Class that reorganizes the shares of the Terminating Fund.
c. At the Merger Date, all of the issued and outstanding shares of the Terminating Fund will be reorganized into shares of the Continuing Fund on a dollar-for-dollar and series-by-series basis, as applicable, and distributed to the then shareholders of the Terminating Fund. The shares of the Continuing Fund received by each shareholder of the Terminating Fund will have the same aggregate net asset value as the shares of the Terminating Fund held by that shareholder on the Merger Date. The underlying portfolio of assets attributable to the Terminating Fund will be included in the underlying portfolio of assets attributable to the Continuing Fund. Investors holding the Terminating Fund in U.S. dollars will receive shares of the Continuing Fund denominated in U.S. dollars as well.
d. Following this process and soon as reasonably possible, the shares of the Terminating Fund will be cancelled.
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 Proposed Merger is approved.