National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- investment fund manager obtaining relief from the requirement to obtain the approval of securityholders before changing the fundamental investment objective of a non-redeemable investment fund -- relief required as a result of changes to tax law eliminating certain tax benefits associated with character conversion transactions -- manager required to send written notice at least 30 days before the effective date of the change to the investment objective of the funds setting out the change, the reasons for such change and a statement that the funds will no longer distribute gains under forward contracts that are treated as capital gains for tax purposes -- National Instrument 81-102 Investment Funds.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.1(1)(c), 19.1.
February 5, 2016
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF FIERA CAPITAL CORPORATION (the Filer) AND CANADIAN CONVERTIBLES PLUS FUND (the Fund)
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) for exemptive relief from the requirement to obtain prior securityholder approval before changing the fundamental investment objectives of the Fund under paragraph 5.1(1)(c) of Regulation 81-102 respecting Investment Funds (c. V-1.1, r. 39) (Regulation 81-102) (the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
a) the Autorité des marchés financiers is the principal regulator for this application,
b) the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System (c. V-1.1, r.1) (Regulation 11-102) is intended to be relied upon in each jurisdiction of Canada, other than Québec and Ontario, and
c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 14-101 respecting Definitions (c. V-1.1, r.3), Regulation 11-102 and Regulation 81-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is the portfolio manager and investment fund manager of the Fund. The Filer is registered as a portfolio manager and as an exempt market dealer in each jurisdiction of Canada and is also registered as an investment fund manager in the Provinces of Ontario, Québec and Newfoundland and Labrador. In addition, the Filer is registered in Québec, as a derivatives portfolio manager pursuant to the Derivatives Act (Québec) (c. I-14.01), in Ontario as a commodity trading manager pursuant to the Commodity Futures Act (Ontario) (R.S.O. 1990, c. C.20) and in Manitoba as an adviser pursuant to the Commodity Futures Act (Manitoba) (C.C.S.M. c. C152).
2. The head office of the Filer is located at 1501 McGill College Avenue, Suite 800, Montreal, Québec H3A 3M8. The Fund's head office is located at 1 Adelaide Street, Suite 600, Toronto, Ontario M5C 2V9.
3. The Fund is an investment trust established under the laws of the Province of Ontario pursuant to a declaration of trust.
4. Neither the Filer nor the Fund is in default of securities legislation in any jurisdiction of Canada.
5. The Fund is a non-redeemable investment fund. Its units were qualified for distribution pursuant to a prospectus dated February 23, 2011 that was prepared and filed in accordance with the securities legislation of each jurisdiction of Canada. Accordingly, the Fund is a reporting issuer or the equivalent in each jurisdiction of Canada. The units of the Fund are listed on the Toronto Stock Exchange.
6. Under its current fundamental investment objectives and strategies, the Fund is a party to a forward purchase and sale agreement (the Forward Agreement). The Forward Agreement provides the Fund with exposure to the returns of the securities of another investment fund, Diversified Convertibles Fund (the Reference Fund). The following are the current fundamental investment objectives of the Fund:
The Fund's investment objectives are to provide holders of Units with: (i) quarterly tax-advantaged distributions; (ii) preservation of capital; and (iii) the opportunity for capital appreciation. The Fund seeks to achieve these objectives through exposure to an actively managed, diversified portfolio of securities (the Portfolio) comprised primarily of convertible debentures of Canadian issuers. To achieve exposure to the Portfolio, the Fund entered into the Forward Agreement.
7. The following are the fundamental investment objectives of the Reference Fund:
The Fund's investment objective is to provide holders of Units with preservation of capital and the opportunity for capital appreciation by investing in an actively managed diversified Portfolio comprised primarily of convertible debentures of Canadian issuers.
8. Through the use of the Forward Agreement, the Fund provides tax-advantaged distributions to securityholders because the Fund will realize capital gains (or capital losses) on the disposition of securities acquired under the Forward Agreement, rather than ordinary income. Ordinary income is subject to taxation at a higher rate in Canada than capital gains.
9. The Forward Agreement is expected to expire and terminate on March 6, 2016 (the Forward Expiry Date).
10. The ITA was amended in December 2013 to implement proposals that were first announced in the March 21, 2013 federal budget regarding the income tax treatment of character conversion transactions (the Tax Changes). Under the Tax Changes, the favourable tax treatment of character conversion transactions will be eliminated after a prescribed date (the Effective Date). The Effective Date for the Fund will be the Forward Expiry Date.
11. Due to the Tax Changes, the Fund will no longer be able to, after the Forward Agreement matures, provide tax-advantaged distributions to securityholders.
12. The Filer has determined that, as a result of the Tax Changes, it would be more efficient and less costly for the Fund to seek to achieve its fundamental investment objectives after the Effective Date by investing its assets directly in the same, or substantially the same, assets as those held by the Reference Fund.
13. The Filer wishes to amend the fundamental investment objectives of the Fund to remove all references to the use of the Forward Agreement to gain exposure to the Portfolio, to delete references to "tax-advantaged" distributions and to clarify that the Fund will invest directly in securities similar to those held by the Reference Fund.
14. Following such amendment, the revised fundamental investment objectives of the Fund will be:
The Fund's investment objectives are to provide holders of Units with: (i) quarterly cash distributions; (ii) preservation of capital; and (iii) the opportunity for capital appreciation.
To achieve its investment objectives, the Fund invests in an actively managed, diversified portfolio of securities (the Portfolio) comprised primarily of convertible debentures of Canadian issuers.
15. The Filer will also make conforming changes to the investment strategies and investment restrictions of the Fund to reflect the Fund's direct investment in the Portfolio.
16. The Filer expects to effect an inter-fund transfer of the portfolio assets of the Reference Fund to the Fund in accordance with applicable securities laws including any previous exemption granted to the Filer. The Reference Fund will be wound up as soon as practicable after the transfer of its portfolio assets.
17. The Filer has complied with the material change report requirements set out in Part 11 of Regulation 81-106 respecting Investment Fund Continuous Disclosure (c. V-1.1, r. 42) in connection with the Filer's decision to make the changes to the fundamental investment objectives of the Fund set out above.
18. The Filer has determined that it would be in the best interests of the Fund and not prejudicial to the public interest to receive the Requested Relief.
Each of the Decisions Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Requested Relief is granted, provided that, at least 30 days before the effective date of the change in the fundamental investment objectives of the Fund, the Filer will send to each securityholder of the Fund a written notice that sets out the change to the fundamental investment objectives, the reasons for such change and a statement that the Fund will no longer distribute gains under the Forward Agreement that are treated as capital gains for tax purposes.