CI Investments Inc.
National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions -- approval of mutual fund merger -- approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds -- merger will occur on a taxable basis -- merger 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) and 19.1(2).
July 6, 2021
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 CI INVESTMENTS INC. (the Manager) AND CAMBRIDGE MONTHLY INCOME CORPORATE CLASS (the Terminating Fund)
The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the proposed merger (the Merger) of the Terminating Fund into Cambridge Global High Income Fund (the Continuing Fund, and collectively with the Terminating Fund, the Funds) 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.
Continuing Fund means Cambridge Global High Income Fund;
Corporation means CI Corporate Class Limited;
Fund means each of the Terminating Fund and the Continuing Fund;
Income Tax Act means the Income Tax Act (Canada);
IRC means the independent review committee for the Terminating Fund; and
Terminating Fund means Cambridge Monthly Income Corporate Class.
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 with its head office located in Ontario. The Manager is registered as follows:
(a) under the securities legislation of each Jurisdiction as a portfolio manager and an exempt market dealer;
(b) under the securities legislation of Ontario, Quebec and Newfoundland and Labrador as an investment fund manager; and
(c) under the Commodity Futures Act (Ontario) as a commodity trading counsel and a commodity trading manager.
2. The Manager is the manager of the Funds.
3. The Terminating Fund is an open-end mutual fund comprised of two or more classes of convertible special shares of CI (the Corporation).
4. The Continuing Fund is an open-end mutual fund governed by a declaration of trust under the laws of Ontario.
5. Neither the Manager nor the Funds are in default of securities legislation in any Jurisdiction.
6. Each Fund follows the standard investment restrictions and practices established under securities legislation of each Jurisdiction, except to the extent that a Fund has received an exemption from the Canadian securities administrators to deviate therefrom.
7. 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.
8. Each Fund currently distributes its securities in all Jurisdictions pursuant to a simplified prospectus and annual information form dated July 29, 2020, as amended.
Reason for Merger Approval
9. Regulatory approval of the Merger is required because the Merger complies with all of the criteria for pre-approved reorganizations and transfers as set out in section 5.6 of NI 81-102, except that the Merger will not be a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada) (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.
The Proposed Merger
10. The proposed Merger was announced in the following documents, each of which has been filed on SEDAR:
(a) a press release dated May 3, 2021;
(b) a material change report dated May 4, 2021;
(c) amendments to the Terminating Fund's simplified prospectus, annual information form, as well as revised fund facts, dated May 10, 2021.
11. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Manager presented the terms of the Merger to the IRC for its review. The IRC determined that the Merger, if implemented, will achieve a fair and reasonable result for the Terminating Fund.
12. The Manager is convening a special meeting of the securityholders of the Terminating Fund in order to seek the approval of securityholders to complete the Merger (the Meeting), as required by paragraph 5.1(1)(f) of NI 81-102. The Meeting will be held on July 12, 2021.
13. The Manager has concluded that the Merger is not a material change to the Continuing Fund, and accordingly, there is no intention to convene a meeting of securityholders of the Continuing Fund to approve the Merger pursuant to paragraph 5.1(1)(g) of NI 81-102.
14. 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 Terminating Fund 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 Terminating Fund would obtain a better participation rate by sending the management information circular with the other proxy-related materials.
15. Pursuant to requirements of the Notice-and-Access Relief, a notice-and-access document and applicable proxies in connection with the Meeting, along with the fund facts of the Continuing Fund, will be mailed to securityholders on or about June 11, 2021 and, concurrently, will be filed via SEDAR. The management information circular (the Circular), which the notice-and-access document provides a link to, will be filed via SEDAR at the same time.
16. If all required approvals for the Merger are obtained, it is intended that the Merger will occur after the close of business on or about July 23, 2021 (the Effective Date). The Manager therefore anticipates that each securityholder of the Terminating Fund will become a securityholder of the Continuing Fund after the close of business on the Effective Date. The Terminating Fund will be wound-up as soon as reasonably possible following the Merger.
17. The tax implications of the Merger, as well as the differences between the Terminating Fund and the Continuing Fund and the IRC's recommendation of the Merger are described in the Circular, so that securityholders may make an informed decision before voting on whether to approve the Merger. The Circular also describes the various ways in which securityholders can obtain a copy of the prospectus of the Continuing Fund.
18. Securityholders of the Terminating Fund will continue to have the right to redeem their securities of the Terminating Fund at any time up to the close of business on the Effective Date. Following the 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.
19. The costs of effecting the Merger (consisting primarily of legal and regulatory fees, and proxy solicitation, printing and mailing costs) will be borne by the Manager.
20. No sales charges will be payable by securityholders of the Terminating Fund in connection with the Merger.
21. Securities of the Continuing Fund received by securityholders of the Terminating Fund as a result of the Merger will have the same sales charge option and, for securities purchased under a deferred sales charge option, the same remaining deferred sales charge schedule, as their securities in the Terminating Fund.
22. The investment portfolio and other assets of the Terminating Fund to be acquired by the Continuing Fund in order to effect the Merger are currently, or will be, acceptable, on or prior to the Effective Date, to the portfolio manager of the Continuing Fund and are, or will be, consistent with the investment objective of the Continuing Fund.
23. The specific steps to implement the Merger are as follows:
(a) Prior to the Merger, if required, the Corporation will sell any securities in the portfolio underlying the Terminating Fund that do not meet the investment objectives and strategies of the Continuing Fund. As a result, the portfolio underlying the Terminating Fund may temporarily hold cash or money market instruments and may not be fully invested in accordance with their investment objectives for a brief period of time prior to the Merger being effected.
(b) The value of the Terminating Fund's investment portfolio and other assets 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.
(c) The Corporation may declare, pay and automatically reinvest ordinary dividends or capital gains dividends to securityholders of the Terminating Fund, as determined by the Manager at the time of the Merger. The Continuing 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 the Continuing Fund will not be subject to tax for its current tax year. For the Terminating Fund's securityholders, this will also ensure that they will not be subject to tax on any income generated prior to the Merger in the Continuing Fund.
(d) The Corporation will transfer substantially all the assets attributed to the Terminating Fund to the Continuing Fund. In return, the Continuing Fund will issue to the Corporation units of the Continuing Fund having an aggregate net asset value equal to the value of the assets transferred to the Continuing Fund.
(e) The Continuing Fund will not assume any of the liabilities of the Corporation attributed to the Terminating Fund. Instead, the Corporation will retain sufficient assets to satisfy the Terminating Fund's estimated liabilities, if any, as of the Effective Date of the Merger.
(f) Immediately thereafter, units of the Continuing Fund received by the Corporation will be distributed to securityholders of the Terminating Fund in exchange for their securities in the Terminating Fund on a dollar-for-dollar and series-by-series basis, so that securityholders of the Terminating Fund become securityholders of the Continuing Fund.
(g) As soon as reasonably possible following the Merger, the articles of incorporation of the Corporation, as amended, will be further amended so that the shares of the Terminating Fund are cancelled.
24. The result of the Merger will be that investors in the Terminating Fund will cease to be securityholders of the Terminating Fund and will become securityholders of the Continuing Fund.
Benefits of the Merger
25. In the opinion of the Manager, the Merger will be beneficial to securityholders of the Terminating Fund for the following reasons:
(a) it is expected that the Merger will result in a more streamlined and simplified product line-up with less duplication that is easier for investors to understand;
(b) following the Merger, the Continuing Fund will have more assets, thereby allowing for increased portfolio diversification opportunities and a smaller proportion of assets to be set aside for fund redemptions;
(c) securityholders of the Terminating Fund will benefit by moving to a Continuing Fund with a much larger net asset value, and the Continuing Fund will benefit from its larger profile in the marketplace; and
(d) the management fee and fixed administration fee with respect to each series of the Continuing Fund will be the same as the management fee and fixed administration fee that are currently payable by securityholders of the corresponding series of the Terminating Fund.
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, provided that the Manager obtains the prior approval of the securityholders of the Terminating Fund at a special meeting held for that purpose.