Ninepoint Partners LP et al.

Headnote

National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions – approval of investment fund mergers – approval required because mergers do not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds – certain terminating funds and continuing funds do not have substantially similar fundamental investment objectives – certain mergers will not be a “qualifying exchange” or a tax-deferred transaction under the Income Tax Act (Canada) – mergers to otherwise comply with pre-approval criteria, including securityholder vote, IRC approval – securityholders provided with timely and adequate disclosure regarding the mergers

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b, 5.7(1)(b), 19.1(2).

March 1, 2019

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
NINEPOINT PARTNERS LP
(the Filer)

AND

NINEPOINT SHORT-TERM BOND CLASS,
NINEPOINT REAL ASSET CLASS
(each, a Terminating Fund and collectively, the Terminating Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) for approval of the proposed merger (the Mergers, and each, a Merger) of Ninepoint Short-Term Bond Class Fund into Ninepoint Short-Term Bond Fund, and the proposed merger of Ninepoint Real Asset Class into Ninepoint Global Infrastructure Fund (together with Ninepoint Short-Term Bond Fund, the Continuing Funds, and each, a Continuing Fund) under subsection 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval 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) 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 Canadian Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 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 limited partnership under the laws of the Province of Ontario with its head office located in Toronto, Ontario.

2.             The Filer is registered in the following categories: (i) in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador as an adviser in the category of portfolio manager; (ii) in Ontario, Newfoundland and Labrador and Quebec as an investment fund manager; and (iii) in British Columbia, Alberta, Quebec, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador as a dealer in the category of exempt market dealer.

3.             The Filer is the investment fund manager of the Terminating Funds and the Continuing Funds (collectively, the Funds, and each a Fund).

4.             The Filer is not in default of any requirement of securities legislation in any of the Canadian Jurisdictions.

The Funds

5.             The Terminating Funds are a separate class of shares of Ninepoint Corporate Class Inc. (the Corporation), a mutual fund corporation governed under the laws of Ontario.

6.             Each Terminating Fund is part of a fund-of-fund structure. Ninepoint Short-Term Bond Class invests all of its assets in securities of Ninepoint Short-Term Bond Fund. Ninepoint Real Asset Class invests primarily in a portfolio of mutual funds managed by the Filer.

7.             The Continuing Funds are open‑ended mutual fund trusts established under the laws of Ontario.

8.             The securities of the Funds are currently qualified for sale under an amended and restated simplified prospectus, annual information form and fund facts documents dated October 1, 2018, as amended (collectively, the Offering Documents).

9.             Each of the Funds is a reporting issuer under the applicable securities legislation in the Canadian Jurisdictions.

10.          The Funds are not in default of any requirement of securities legislation in any of the Canadian Jurisdictions.

11.          Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under NI 81-102.

12.          The net asset value for each series of the Funds is calculated on a daily basis in accordance with the Funds’ valuation policy and as described in the Offering Documents.

13.          Subject to obtaining approval of the securityholders of Ninepoint Short-Term Bond Fund in respect of a proposed change to the investment objectives of Ninepoint Short-Term Bond Fund, the investment objective of Ninepoint Short-Term Bond Fund will be changed on the effective date of the Merger and Ninepoint Short-Term Bond Fund will be re-named Ninepoint High Interest Savings Fund.

Reason for Approval Sought

14.          Regulatory approval of the Mergers is required because each Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. The pre-approval criteria are not satisfied in the following ways:

(a)           In connection with the merger of Ninepoint Short-Term Bond Class into Ninepoint Short-Term Bond Fund, the proposed fundamental investment objectives of Ninepoint Short-Term Bond Fund are not, or may not be considered to be “substantially similar” to the investment objectives of Ninepoint Short-Term Bond Class;

(b)           In connection with the merger of Ninepoint Real Asset Class into Ninepoint Global Infrastructure Fund, the fundamental investment objectives of Ninepoint Global Infrastructure Fund are not, or may not be considered to be “substantially similar” to the investment objectives of Ninepoint Real Asset Class; and

(c)           The Mergers will not be completed as a “qualifying exchange” under the Income Tax Act (Canada) (the Tax Act).

15.          The investment objectives of Ninepoint Short-Term Bond Class and its respective Continuing Fund, and the proposed investment objectives of its respective Continuing Fund are as follows:

16.          The investment objectives of Ninepoint Real Asset Class and its respective Continuing Fund are as follows:

17.          Ninepoint Short-Term Bond Fund currently has the same management fee as Ninepoint Short-Term Bond Class. However, if the proposed investment objective change of Ninepoint Short-Term Bond Fund is approved by its existing securityholders, the management fee of Ninepoint Short-Term Bond Fund will decrease on the effective date of the Mergers, so that securityholders of Ninepoint Short-Term Bond Class will receive securities of Ninepoint Short-Term Bond Fund that have a management fee that is lower than the management fee charged in respect of their securities of Ninepoint Short-Term Bond Class.

18.          The management fee rate of Ninepoint Real Asset Class is lower than the management fee of its Continuing Fund.

19.          The Mergers will be effected on a taxable basis and will not be completed as a “qualifying exchange” under the Tax Act, since a tax-deferred merger is not possible under the Tax Act given the structure of the Funds.

20.          Except as described in this decision, the proposed Mergers comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

The Proposed Mergers

21.          The Filer intends to reorganize the Funds as follows:

(a)           Ninepoint Short-Term Bond Class will merge into Ninepoint Short-Term Bond Fund; and

(b)           Ninepoint Real Asset Class will merge into Ninepoint Global Infrastructure Fund.

22.          In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the proposed Mergers was issued and filed by the Terminating Funds via SEDAR on January 7, 2019. A material change report with respect to the proposed Mergers was filed via SEDAR on January 7, 2019.

23.          The Filer has concluded that the Mergers are not material to the Continuing Funds.

24.          As required by National Instrument 81‑107 Independent Review Committee for Investment Funds, an Independent Review Committee (the IRC) has been appointed for the Funds. The Filer presented the potential conflict of interest matters related to the proposed Mergers to the IRC for a decision. The IRC reviewed the potential conflict of interest matters related to the proposed Mergers and provided its position decision on December 17, 2018 for the proposed merger of Ninepoint Short-Term Bond Class into Ninepoint Short-Term Bond Fund and on January 4, 2019 for the proposed merger of Ninepoint Real Asset Class into Ninepoint Global Infrastructure Fund, after determining that each proposed Merger, if implemented, would achieve a fair and reasonable result for each applicable Fund.

25.          Securityholders of the Terminating Funds approved the Mergers at special meetings held on February 25, 2019. Securityholders of Ninepoint Short-Term Bond Fund approved the investment objective change at an adjourned special meeting held on February 27, 2019.

26.          The Filer will pay for the costs of the Mergers. These costs consist mainly of legal, proxy solicitation, printing, mailing and regulatory fees. Due to the fund-of-fund structure of the Funds, the Filer does not anticipate that any brokerage charges will be incurred by either the Continuing Funds or Terminating Funds in connection with the Mergers.

27.          The Mergers have been approved by the board of directors of each of the Filer and the Corporation.

28.          The Mergers have also been approved by the sole common voting shareholder of the Corporation, as required under applicable corporate law.

29.          Securityholders that purchased securities of a Terminating Fund under the low load purchase option will receive securities of the applicable Continuing Fund that are subject to the same deferred sales charges as the securities they own in the Terminating Fund.

30.          If all required approvals for the Mergers are obtained, it is intended that the Mergers will occur after the close of business on or about March 4, 2019 (the Effective Date). The Filer therefore anticipates that each securityholder of each Terminating Fund will become a securityholder of the applicable Continuing Fund after the close of business on the Effective Date.

31.          A notice of meeting, a management information circular, a proxy and fund facts documents for the Continuing Funds in connection with special meetings of securityholders was mailed to securityholders of the Terminating Funds commencing on February 4, 2019 and was concurrently filed via SEDAR. The fund facts document mailed to securityholders of Ninepoint Short-Term Bond Class included a description of the proposed investment objective change of Ninepoint Short-Term Bond Fund.

32.          The tax implications of the Mergers, differences between being a securityholder of a mutual fund corporation and a securityholder of a mutual fund trust, differences between the investment objectives as well as the differences between the fee structures of each Terminating Fund and the applicable Continuing Funds and the IRC’s recommendation of the Mergers were described in the management information circular so that the securityholders of the applicable Terminating Funds could consider this information before voting on the Mergers. The meeting materials also described the various ways in which investors could obtain a copy of the simplified prospectus, annual information form and fund facts document(s) for the applicable Continuing Fund and its most recent interim and annual financial statements and management reports of fund performance.

33.          In light of the disclosure in the management information circular, securityholders of the Terminating Funds have all the information necessary to determine whether the proposed Mergers are appropriate for them.

34.          No sales charges will be payable by securityholders of the Terminating Funds in connection with the Mergers.

35.          Securities of the Terminating Funds and the Continuing Funds are, and are expected to continue to be at all material times, “qualified investments” under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax free savings accounts.

Merger Steps

36.          The proposed merger of Ninepoint Short-Term Bond Class into Ninepoint Short-Term Bond Fund will be structured as follows:

(a)           Prior to effecting the Merger, the Terminating Fund will redesignate its existing series of securities of the Continuing Fund into the series of securities of the Continuing Fund which align to the current series holdings of securityholders in the Terminating Fund.

(b)           The Corporation may declare, pay, and automatically reinvest ordinary dividends or capital gains dividends to securityholders of the Terminating Fund, where determined fair and equitable.

(c)           The value of the Terminating Fund’s portfolio and other assets and liabilities will be determined at the close of business on the effective date of the Merger in accordance with the constating documents of the Terminating Fund.

(d)           The Continuing Fund will not assume any liabilities of the Terminating Fund and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the applicable Merger.

(e)           The articles of incorporation, as amended, of the Corporation will be further amended so that all of the issued and outstanding securities of the Terminating Fund will be cancelled and the securities of the Continuing Fund held by the Corporation will be distributed to each securityholder of the Terminating Fund in exchange for their securities in the Terminating Fund on a dollar-for-dollar basis, as applicable.

(f)            Securities of the Continuing Fund received by the securityholders of the Terminating Fund will have an aggregate net asset value equal to the aggregate net asset value of the securities of the Terminating Fund which are being redeemed.

37.          The proposed merger of Ninepoint Real Asset Class into Ninepoint Global Infrastructure Fund will be structured as follows:

(a)           Prior to effecting the Merger, the Terminating Fund will redeem the securities of each fund that the Terminating Fund holds in its portfolio, other than securities of the Continuing Fund. As a result, the Terminating 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. The Terminating Fund will use the cash redemption proceeds to buy securities of the Continuing Fund which align to the current series holdings of securityholders in the Terminating Fund.

(b)           The Corporation may declare, pay, and automatically reinvest ordinary dividends or capital gains dividends to securityholders of the Terminating Fund, where determined fair and equitable.

(c)           The value of the Terminating Fund’s portfolio and other assets and liabilities will be determined at the close of business on the effective date of the Merger in accordance with the constating documents of the Terminating Fund.

(d)           The Continuing Fund will not assume any liabilities of the Terminating Fund and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the applicable Merger.

(e)           The articles of incorporation, as amended, of the Corporation will be further amended so that all of the issued and outstanding securities of the Terminating Fund will be cancelled and the securities of the Continuing Fund held by the Corporation will be distributed to each securityholder of the Terminating Fund in exchange for their securities in the Terminating Fund on a dollar‑for‑dollar basis, as applicable.

(f)            Securities of the Continuing Fund received by the securityholders of the Terminating Fund will have an aggregate net asset value equal to the aggregate net asset value of the securities of the Terminating Fund which are being redeemed.

38.          The Filer believes that the Mergers are beneficial to securityholders of each Terminating Fund and Continuing Fund for the following reasons:

(a)           the Mergers will result in a more streamlined and simplified product line-up that is easier for investors to understand;

(b)           although the investment objectives of Ninepoint Real Asset Class may not be substantially similar to its corresponding Continuing Fund, Ninepoint Real Asset Class has a similar investment mandate as its corresponding Continuing Fund, and as a result, the Merger will contribute towards reducing duplication and redundancy across the fund line-up;

(c)           the Mergers provide securityholders of the Terminating Funds with options to (a) switch to another investment, (b) redeem their investment, and (c) maintain an investment with the Filer in the Continuing Fund without having to initiate a switch with the advisor, which provides the securityholders of the Terminating Funds with flexibility, convenience and potential cost savings;

(d)           following the Mergers, Ninepoint Global Infrastructure Fund will have a portfolio of greater value, which may allow for increased portfolio diversification opportunities if desired;

(e)           following the Merger, Ninepoint Global Infrastructure Fund, as a result of its greater size, may benefit from its larger profile in the marketplace;

(f)            investors of Ninepoint Real Asset Class will receive securities of the applicable Continuing Fund that have a management fee that is lower than the management fee charged in respect of the securities that they currently hold and thus, the management expense ratio is expected to be lower;

(g)           as the proposed investment objective change has been approved, investors of Ninepoint Short-Term Bond Class will receive securities of the applicable Continuing Fund that have a management fee that is lower than the management fee charged in respect of the securities that they currently hold, and thus, the management expense ratio is expected to be lower; and

(h)           as the proposed investment objective change has been approved, Ninepoint Short-Term Bond Fund will have a greater appeal to prospective investors and therefore the potentially increased ability to attract new investors.

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 Approval Sought is granted.

“Stephen Paglia”
Investment Funds and Structured Products Branch
Ontario Securities Commission