National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval for change of control of manager under s. 5.5(1)(a.1) of National Instrument 81-102 Investment Funds and abridgement of securityholder notice period under s. 5.8(1)(a) of NI 81-102 to 32 days -- acquirer has requisite experience and integrity to participate in Canadian capital markets -- transaction will not result in any material changes to operations and management of the manager or the funds it manages.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a.1), 5.7(1)(a), 5.8(1), 19.1.
November 24, 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 FIRST ASSET INVESTMENT MANAGEMENT INC. (the Manager or First Asset)
The principal regulator in the Jurisdiction has received an application from the Manager and CI Financial Corp. (CI, and together with the Manager, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval with respect to a proposed change of control of the Manager pursuant to section 5.5(1)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval Sought) and an abridgement to not less than 32 days of the time period prescribed by section 5.8(1)(a) of NI 81-102 for delivering notice to securityholders of the First Asset Funds (as defined below) of the change of control of the Manager resulting from the Proposed Transaction (as defined below) (the Abridgement Relief).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and
(b) the Manager 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 each province and territory of Canada (the Jurisdictions).
Terms defined in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision unless otherwise defined.
The decision is based on the following facts represented by the Filers:
CI and CI Investments Inc.
1. CI, a corporation existing under the Business Corporations Act (Ontario) (OBCA), with its head office in Toronto, Ontario, is a diversified wealth management firm and one of Canada's largest investment fund companies.
2. CI is a reporting issuer in all of the provinces of Canada. CI's common shares are listed on the Toronto Stock Exchange (the TSX) under the trading symbol "CIX".
3. CI owns 100% of CI Investments Inc. (the CI Manager).
4. The CI Manager, a corporation existing under the OBCA with its head office in Toronto, Ontario, is one of Canada's largest investment fund companies and manages investment funds, as well as other investment products.
5. The CI Manager is registered as (i) an investment fund manager (IFM) in Ontario, Quebec and Newfoundland and Labrador; (ii) adviser in the category of portfolio manager (PM) in all provinces; (iii) a dealer in the category of exempt market dealer (EMD) in Ontario; and (iv) commodity trading counsel and commodity trading manager (CTM) in Ontario.
First Asset Capital Corp. and First Asset
6. First Asset Capital Corp. (FACC), a corporation existing under the OBCA with its head office in Toronto, Ontario, is a privately-owned investment management firm.
7. FACC owns 100% of First Asset Funds Inc. (FAFI) and FAFI owns 100% of First Asset.
8. First Asset, a corporation existing under the OBCA, has its head office in Toronto, Ontario.
9. First Asset is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador. First Asset is also registered as a portfolio manager, exempt market dealer and commodity trading manager in Ontario.
The First Asset Funds
10. First Asset is the manager, trustee and portfolio advisor of the funds listed in Schedule "A" hereto.
11. The First Asset Funds are reporting issuers in some or all provinces and territories of Canada.
12. Securities of the First Asset Funds are distributed in some or all provinces and territories of Canada under prospectuses filed on SEDAR qualifying the First Asset Funds for distribution. The First Asset Funds are mutual fund trusts, corporations or limited partnerships existing under the laws of Ontario. The First Asset Funds are exchange-traded funds, closed-end funds, and mutual funds as set out in Schedule "A".
13. None of CI, the CI Manager, FACC, FAFI, First Asset or the First Asset Funds is in default of any securities legislation in any of the Jurisdictions.
The Proposed Transaction
14. CI entered into a binding agreement with key shareholders of FACC on October 15, 2015 to purchase 100% of the issued and outstanding shares of FACC (the Proposed Transaction).
15. It is anticipated that the Proposed Transaction will be accomplished through a sale and purchase agreement under which CI will acquire all the outstanding shares of FACC in return for cash and common shares of CI. Ideally, the parties would like to close no later than November 30, 2015 (the Closing Date), provided that, among other things, all necessary regulatory notices, non-objections, and approvals have been given and received. If completed as contemplated, following the Closing Date, CI will indirectly be the new beneficial owner of FACC, FAFI and First Asset.
16. A notice regarding the Proposed Transaction was delivered to the Compliance & Registrant Regulation branch of the OSC on October 23, 2015 pursuant to sections 11.9 and 11.10 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
Change of Control of Manager
17. As the share ownership of First Asset will change such that after the Closing Date, CI will indirectly, through a wholly-controlled subsidiary, own 100% of the issued and outstanding shares of FACC and CI will therefore indirectly own 100% of First Asset, the Proposed Transaction will result in a change of control of First Asset and accordingly regulatory approval is required pursuant to section 5.5(1)(a.1) of NI 81-102.
Impact on the Manager and the First Asset Funds
18. Completion of the Proposed Transaction is not expected to result in any material changes to, or impact on, the business, operations or affairs of the First Asset Funds, the securityholders of the First Asset Funds or First Asset.
19. First Asset will continue to act as the investment fund manager of the First Asset Funds as a discrete, separate and distinct legal entity in materially the same manner as it has conducted such activities immediately prior to the Closing Date.
20. There are no plans to change the role of First Asset as manager of the First Asset Funds. First Asset will operate autonomously with the existing senior management team. There are no immediate plans to make changes to First Asset's business model.
21. There is no current intention to: (i) change the names or branding of First Asset or the First Asset Funds as a result of the Proposed Transaction; (ii) change the officers or registered individuals of First Asset; (iii) make any substantive changes as to how First Asset operates or manages the First Asset Funds; (iv) change the portfolio advisors of the First Asset Funds; or (v), immediately following the Closing Date, or within a foreseeable period of time, change the investment fund manager to the First Asset Funds. The only change that is contemplated is that CI will elect the majority of directors of First Asset immediately after the Proposed Transaction closes.
22. There is no current intention to merge or integrate the business operations of First Asset into CI or the CI Manager.
23. No assessment has been made as to duplication of personnel or systems and accordingly, no decisions have been made as to rationalization with respect to these matters. There is no duplication of core First Asset fund products or services that will require rationalization in the near future.
24. Other than to add oversight of First Asset by having a majority of CI nominees on the First Asset board, there are no current plans to: (a) make staffing changes to First Asset; (b) change the structures, investment objectives or strategies of the First Asset Funds; (c) change the fees and expenses that would be charged to the First Asset Funds; (d) have CI involved in any of the business, operations or affairs of First Asset, such as oversight of the compliance activities of First Asset; (e) make changes to fund accounting and other administrative functions undertaken by the current providers, both internal and external, to First Asset or the First Asset Funds; or (f) make changes to the custodians or trustees of the First Asset Funds.
25. No current directors, officers or employees of CI or its affiliates are expected to become involved in the day-to-day management of the First Asset Funds following completion of the Proposed Transaction.
26. The members of the Independent Review Committee (IRC) of the First Asset Funds will cease to be IRC members by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107). However, it is currently intended that immediately following the completion of the Proposed Transaction, the same members of the IRC will be re-appointed by First Asset.
27. The Proposed Transaction is not expected to impact the financial stability of the Manager or its ability to fulfill its regulatory obligations.
28. Written notice (the Notice) regarding the Proposed Transaction was sent to each securityholder of the First Asset Funds on October 29, 2015, which, if the Closing Date occurs on November 30, 2015, means that securityholders of the First Asset Funds will have received the Notice approximately 32 days before the Closing Date of the Proposed Transaction.
29. While the Proposed Transaction is pending, but not closed, there is uncertainty among clients and others regarding First Asset. To preserve the business and relationships of First Asset, it is strongly preferable to close the Proposed Transaction promptly with an abridgement to the 60-day notice period and minimize this period of uncertainty.
30. It is the Filers' view that it would not be prejudicial to the securityholders of the First Asset Funds to abridge the notice period required under s. 5.8(1)(a) of NI 81-102 from 60 days to not less than 32 days for the following reasons:
(a) the securityholders of the First Asset Funds will be sufficiently aware of the Proposed Transaction;
(b) the Proposed Transaction is not expected to result in any change in how the Manager administers or manages the First Asset Funds;
(c) the Proposed Transaction will not have any impact on the securityholders' interest in the First Asset Funds and securityholders are not required to take any action; securityholders need only consider whether they wish to dispose of their securities of the First Asset Funds. The change of control of the Manager, by itself, will not trigger any other material change to the First Asset Funds; and
(d) the First Asset Funds calculate and publish their net asset values per security on a daily basis and either permit redemptions of securities of the First Asset Funds on a daily basis or are listed on the TSX, allowing securityholders of the First Asset Funds to redeem or dispose of their securities prior to the Closing Date if they so choose.
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:
(e) the Approval Sought is granted; and
(f) the Abridgement Relief is granted provided that
(i) the Notice is given to securityholders of the First Asset Funds at least 32 days before the Closing Date, and
(ii) no material changes will be made to the management, operations or portfolio management of the First Asset Funds for at least 60 days following the date the Notice was delivered.
LIST OF FIRST ASSET FUNDS
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First Asset Canadian Convertible Bond ETF
First Asset Provincial Bond Index ETF
First Asset 1-5 Year Laddered Government Strip Bond Index ETF
First Asset Active Credit ETF
First Asset Core Canadian Equity ETF
First Asset Core U.S. Equity ETF
First Asset Core Balanced ETF
First Asset Canadian REIT ETF
First Asset CanBanc Income ETF
First Asset Can-Energy Covered Call ETF
First Asset Can-Materials Covered Call ETF
First Asset Tech Giants Covered Call ETF
First Asset Energy Giants Covered Call ETF
First Asset Active Canadian Dividend ETF
First Asset Active Utility & Infrastructure ETF
First Asset Hamilton Capital European Bank ETF
First Asset U.S. & Canada Lifeco Income ETF
First Asset Morningstar Canada Dividend Target 30 Index ETF
First Asset Morningstar US Dividend Target 50 Index ETF
First Asset Morningstar Canada Momentum Index ETF
First Asset Morningstar US Momentum Index ETF
First Asset Morningstar Canada Value Index ETF
First Asset Morningstar US Value Index ETF
First Asset Morningstar National Bank Québec Index ETF
First Asset Morningstar International Momentum Index ETF
First Asset Morningstar International Value Index ETF
First Asset MSCI Canada Low Risk Weighted ETF
First Asset MSCI USA Low Risk Weighted ETF
First Asset MSCI Europe Low Risk Weighted ETF
First Asset MSCI World Low Risk Weighted ETF
First Asset Core Canadian Equity Income ETF
First Asset Energy & Resource Fund
JFT Strategies Fund
Preferred Share Investment Trust
Triax Diversified High-Yield
Utility Split Trust
First Asset Morningstar US Consumer Defensive Index Fund
First Asset Hamilton Capital European Bank Fund
Canadian Advantaged Convertibles Fund
Canadian Convertibles Fund
First Asset Diversified Convertible Debenture Fund
North American Advantaged Convertibles Fund
Convertibles Portfolio Fund
CanBanc 8 Income Corp.
Can-Financials Income Corp.
First Asset CanBanc Split Corp.
First Asset Global Dividend Fund
First Asset Canadian Convertible Bond Fund
First Asset REIT Income Fund
First Asset Utility Plus Fund
First Asset Canadian Energy Convertible Debenture Fund
First Asset Canadian Dividend Opportunity Fund
First Asset Resource Fund Inc.
First Asset Canadian Convertible Debenture Fund
First Asset Canadian Dividend Opportunity Fund II
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