National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of mutual fund mergers – approval required because certain mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 – the fundamental investment objectives of the terminating funds and the continuing funds are not substantially similar for certain mergers – all mergers not a “qualifying exchange” or a tax-deferred transaction under the Income Tax Act (Canada) – securityholders of terminating funds are provided with timely and adequate disclosure regarding the mergers.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 19.1.
October 19, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
CI INVESTMENTS INC.
CI INTERNATIONAL FUND,
CI INTERNATIONAL CORPORATE CLASS,
MARRET STRATEGIC YIELD FUND,
CI GLOBAL MANAGERS® CORPORATE CLASS
(each, a Terminating Fund, and collectively the Terminating Funds)
The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the proposed mergers (each a Merger, and collectively the Mergers) of each of the Terminating Funds into the applicable Continuing Funds (each as defined below) pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Merger Approval).
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 Manager has provided notice that subsection 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, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with Ontario, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. The following additional terms shall have the following meanings:
Continuing Corporate Fund means each of CI International Value Corporate Class and Select 100e Managed Portfolio Corporate Class;
Continuing Fund or Continuing Funds means, individually or collectively, CI International Value Fund, CI International Value Corporate Class, Select 100e Managed Portfolio Corporate Class and Signature Diversified Yield II Fund;
Continuing Trust Fund means each of CI International Value Fund and Signature Diversified Yield II Fund;
Corporation means CI Corporate Class Limited;
Fund or Funds means, individually or collectively, the Terminating Funds and the Continuing Funds;
Income Tax Act means the Income Tax Act (Canada);
IRC means the independent review committee for the Funds;
Terminating Corporate Fund means each of CI Global Managers® Corporate Class and CI International Corporate Class; and
Terminating Trust Fund means each of CI International Fund and Marret Strategic Yield Fund.
This decision is based on the following facts represented by the Manager:
The Manager and the Funds
1. The Manager is a corporation amalgamated under the laws of Ontario. The Manager is registered as follows:
(a) under the securities legislation of all provinces as a portfolio manager;
(b) under the securities legislation of Ontario, Quebec and Newfoundland and Labrador as an investment fund manager;
(c) under the securities legislation of Ontario as an exempt market dealer; and
(d) under the Commodity Futures Act (Ontario) as a commodity trading counsel and a commodity trading manager.
2. The Manager is the manager of each Fund.
3. Each of CI International Fund, CI International Value Fund, Marret Strategic Yield Fund and Signature Diversified Yield II Fund is an open-end mutual fund trust governed by a declaration of trust.
4. Each of CI International Corporate Class, CI International Value Corporate Class, CI Global Managers® Corporate Class and Select 100e Managed Portfolio Corporate Class is an open-ended mutual fund comprised of two or more classes of convertible special shares of the Corporation.
5. Neither the Manager nor the Funds are in default of securities legislation in any jurisdiction.
6. Each Fund is a reporting issuer under the securities legislation of each jurisdiction and is subject to the requirements of NI 81-102 and National Instrument 81-101 Mutual Fund Prospectus Disclosure.
7. Each Fund follows the standard investment restrictions and practices established under the securities legislation of the Jurisdictions except to the extent that the Funds have received an exemption from the securities regulatory authority of a jurisdiction to deviate therefrom.
8. Each Fund currently distributes its securities in all the Jurisdictions pursuant to a simplified prospectus and annual information form dated July 27, 2017, as amended.
Reason for Merger Approval
9. Regulatory approval of the Mergers is required because none of the Mergers satisfies all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. In particular,
(a) in respect of each of the Mergers of (i) Marret Strategic Yield Fund into Signature Diversified Yield II Fund and (ii) CI Global Managers® Corporate Class into Select 100e Managed Portfolio Corporate Class, a reasonable person may not consider the Terminating Fund to have a substantially similar fundamental investment objective as its corresponding Continuing Fund; and
(b) no Merger will be a “qualifying exchange” within the meaning of section 132.2 of the Income Tax Act or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Income Tax Act.
10. Other than the criteria described in paragraph 9, each Merger complies with all the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Mergers
11. The Manager intends to merge each Terminating Fund into the Continuing Fund shown opposite its name in the table below:
CI International Fund
CI International Value Fund
Marret Strategic Yield Fund
Signature Diversified Yield II Fund
CI International Corporate Class
CI International Value Corporate Class
CI Global Managers® Corporate Class
Select 100e Managed Portfolio Corporate Class
12. The proposed Mergers were announced in:
(a) a press release dated August 23, 2017;
(b) a material change report dated August 30, 2017; and
(c) an amendment dated August 30, 2017 to the prospectuses of each of the Funds,
each of which has been filed on SEDAR.
13. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Manager presented the terms of the Mergers to the IRC for its review. The IRC determined that the Mergers, if implemented, will achieve a fair and reasonable result for each of the Funds.
14. The Manager is convening a special meeting 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 paragraph 5.1(1)(f) of NI 81-102. The Meetings will be held on or about October 26, 2017.
15. The Manager has concluded that the Mergers are not material changes to the Continuing Funds, and accordingly, there is no intention to convene a meeting of securityholders of the Continuing Funds to approve the Mergers pursuant to paragraph 5.1(1)(g) of NI 81-102.
16. However, in accordance with corporate law requirements, securityholders of each Continuing Corporate Fund will be asked to approve an amendment to the articles of the Corporation in connection with the exchange of securities for the applicable Continuing Corporate Fund in connection with its Merger at a special meeting to be held on or about October 26, 2017 (together with the special meetings referred to in paragraph 14, the Meetings).
17. By way of order dated July 28, 2017, the Manager was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of National Instrument 81-106 Investment Fund Continuous Disclosure to send a printed management information circular to securityholders while proxies are being solicited, and, subject to certain conditions, instead allows a notice-and-access document (as described in the Notice-and-Access Relief) to be sent to such securityholders. In accordance with the Manager’s standard of care owed to the Funds pursuant to securities legislation, the Manager will only use the notice-and-access procedure for a particular meeting where it has concluded it is appropriate and consistent with the purposes of notice-and-access (as described in the Companion Policy to NI 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer) to do so, also taking into account the purpose of the meeting and whether the Funds would obtain a better participation rate by sending the management information circular with the other proxy-related materials.
18. Pursuant to requirements of the Notice-and-Access Relief, a notice-and-access document and applicable proxies in connection with the Meetings, along with the fund facts of the Continuing Fund, as applicable, were mailed to securityholders commencing on September 26, 2017 and were concurrently filed via SEDAR. The management information circular (the Circular), which the notice-and-access document provides a link to, was also be filed via SEDAR at the same time.
19. If all required approvals for a Merger are obtained, it is intended that the Merger will occur after the close of business on or about November 3, 2017 (the Effective Date). The Manager therefore anticipates that each securityholder of a Terminating Fund will become a securityholder of its Continuing Fund after the close of business on the Effective Date. Each Terminating Fund will be wound-up as soon as reasonably possible following its Merger.
20. The tax implications of the Mergers as well as the differences between the investment objectives and other features of the Terminating Funds and the Continuing Funds and the IRC’s recommendation of the Mergers are described in the Circular, so that securityholders may make an informed decision before voting on whether to approve the Mergers. The Circular will also describe the various ways in which securityholders can obtain a copy of the simplified prospectus, annual information forms and fund facts for the Continuing Funds and their most recent interim and annual financial statements and management reports of fund performance.
21. Securityholders of each Terminating Fund will continue to have the right to redeem securities of the Terminating Fund at any time up to the close of business on the business day immediately preceding 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 securityholders advise otherwise.
22. The costs of effecting the Mergers (consisting primarily legal and regulatory fees, and proxy solicitation, printing and mailing, as applicable) will be borne by the Manager.
23. No sales charges will be payable by securityholders of the Funds in connection with the Mergers.
24. The investment portfolio and other assets of each Terminating Fund to be acquired by the applicable Continuing Fund in order to effect the Mergers are currently, or will be, acceptable, on or prior to the Effective Date, to the portfolio manager(s) of the applicable Continuing Fund and are, or will be, consistent with the investment objective of the applicable Continuing Fund.
25. Due to the different structures of the Funds, the procedures for implementing the Mergers will vary. The specific steps, taking into account the particular features of each Fund, to implement each Merger are as follows:
(a) With respect to the Merger of a Terminating Trust Fund into a Continuing Trust Fund (i.e., Mergers #1 and #2):
(i) Prior to the Merger, if required, each Terminating Trust Fund will sell any securities in its portfolio that do not meet the investment objective and investment strategies of the applicable Continuing Trust Fund. As a result, the Terminating Trust Fund may temporarily hold cash or money market instruments and may not be fully invested in accordance with its investment objective for a brief period of time prior to the Merger being effected.
(ii) The value of the Terminating Trust Fund’s investment portfolio and other assets will be determined at the close of business on the Effective Date in accordance with the constating documents of the Terminating Trust Fund.
(iii) Each of the Terminating Trust Fund and the Continuing Trust Fund will declare, pay and automatically reinvest a distribution to its securityholders of net realized capital gains and net income, if any, to ensure that it will not be subject to tax for its current tax year.
(iv) The Terminating Trust Fund will transfer substantially all of its assets to the Continuing Trust Fund. In return, the Continuing Trust Fund will issue to the Terminating Trust Fund units of the Continuing Trust Fund having an aggregate net asset value equal to the value of the assets transferred to the Continuing Trust Fund.
(v) Each Continuing Trust Fund will not assume liabilities of the applicable Terminating Trust Fund and the Terminating Trust Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the Effective Date.
(vi) Immediately thereafter, units of the Continuing Trust Fund received by the Terminating Trust Fund will be distributed to securityholders of the Terminating Trust Fund in exchange for their securities in the Terminating Trust Fund on a dollar-for-dollar and class-by-class basis.
(vii) The Terminating Trust Fund will be wound-up within 30 days following its Merger.
(b) With respect to the Merger of a Terminating Corporate Fund into a Continuing Corporate Fund (i.e., Mergers #3 and #4):
(i) Prior to the Merger, if required, the Corporation will sell any securities in the portfolio underlying the Terminating Corporate Fund that do not meet the investment objective and investment strategies of the Continuing Corporate Fund. As a result, the portfolio underlying the Terminating Corporate Fund may temporarily hold cash or money market instruments and may not be fully invested in accordance with its investment objective for a brief period of time prior to the Merger being effected.
(ii) The value of Terminating Corporate Fund’s investment portfolio and other assets will be determined at the close of business on the Effective Date in accordance with the constating documents of the Terminating Corporate Fund.
(iii) The Corporation may declare, pay and automatically reinvest ordinary dividends or capital gains dividends to securityholders of the Terminating Corporate Fund and/or the Continuing Corporate Fund, as determined by the Manager at the time of the Merger.
(iv) Each outstanding share of the Terminating Corporate Fund will be exchanged for share(s) of the equivalent class of the Continuing Corporate Fund based on their relative net asset values.
(v) The assets and liabilities of the Corporation attributed to the Terminating Corporate Fund will be reallocated to the Continuing Corporate Fund.
(vi) The articles of incorporation of the Corporation, as amended, will be further amended so that all of the issued and outstanding shares of the Terminating Corporate Fund will be exchanged for shares of the Continuing Corporate Fund on a dollar-for-dollar and class-by-class basis, so that securityholders of the Terminating Corporate Fund will become securityholders of the Continuing Corporate Fund and so that shares of the Terminating Corporate Fund are cancelled.
26. Although the procedures for implementing the Mergers will vary, the result of each Merger will be that investors in each Terminating Fund will cease to be securityholders of the Terminating Fund, will become securityholders of its Continuing Fund and will realize capital gains or capital losses. The Continuing Funds will continue as publicly-offered open-end mutual funds.
Benefits of the Mergers
27. In the opinion of the Manager, the Mergers will be beneficial to securityholders of the Funds for the following reasons:
(a) it is expected that the Mergers will result in a more streamlined and simplified product line-up that is easier for investors to understand;
(b) the Mergers will eliminate similar fund offerings across product line-ups, reducing duplication and redundancy;
(c) 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;
(d) each Continuing Fund will benefit from its larger profile in the marketplace; and
(e) the management fee and administration fee with respect to each class of each Continuing Fund will be the same as (and in certain cases, in respect of the administration fee, lower than) the management fee and administration fee that are currently payable by securityholders of the corresponding class of the applicable Terminating Fund.
28. In addition to the reasons set out in paragraph 27, the Manager believes that securityholders of CI International Corporate Class will benefit in a Merger with CI International Value Corporate Class by moving to a fund with a much larger net asset value while retaining a substantially similar investment mandate and an identical fee structure.
29. In addition to the reasons set out in paragraph 27, the Manager believes that securityholders of Marret Strategic Yield Fund, which currently does not qualify as a mutual fund trust under the Income Tax Act, will benefit in a Merger with Signature Diversified Yield II Fund by moving into a fund that qualifies as a mutual fund trust under the Income Tax Act with a much larger net asset value, while retaining a similar investment mandate and an identical fee structure.
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 Merger Approval is granted.
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission