National Bank Investments Inc. et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- merger approval required because merger does not meet the criteria for pre-approval -- continuing fund has different investment objectives than terminating fund -- fee structure not substantially similar -- merger not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- sending of the preliminary fund facts document instead of the final fund facts document in respect of the new series of the continuing funds -- 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) and 5.7.

[TRANSLATION]

May 11, 2021

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 NATIONAL BANK INVESTMENTS INC. (the Filer) AND NBI TACTICAL MORTGAGE & INCOME FUND NBI STRATEGIC U.S. INCOME AND GROWTH FUND NBI HIGH YIELD BOND PRIVATE PORTFOLIO NBI JARISLOWSKY FRASER SELECT BALANCED FUND NATIONAL BANK SECURE DIVERSIFIED FUND NBI DIVIDEND FUND NATIONAL BANK CONSERVATIVE DIVERSIFIED FUND NATIONAL BANK MODERATE DIVERSIFIED FUND NATIONAL BANK BALANCED DIVERSIFIED FUND NATIONAL BANK GROWTH DIVERSIFIED FUND NBI CANADIAN EQUITY FUND NBI CANADIAN SMALL CAP EQUITY PRIVATE PORTFOLIO NBI REAL ASSETS PRIVATE PORTFOLIO NBI U.S. DIVIDEND FUND NBI CANADIAN INDEX FUND NBI U.S. INDEX FUND NBI U.S. CURRENCY NEUTRAL INDEX FUND NBI INTERNATIONAL INDEX FUND NBI INTERNATIONAL CURRENCY NEUTRAL INDEX FUND NBI CANADIAN DIVERSIFIED BOND PRIVATE PORTFOLIO NBI MUNICIPAL BOND PLUS PRIVATE PORTFOLIO NBI GLOBAL BOND FUND MERITAGE TACTICAL ETF FIXED INCOME PORTFOLIO (each, a Terminating Fund and collectively, the Terminating Funds)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an approval of the proposed mergers of the Terminating Funds into the Continuing Funds (defined below) (the Mergers) pursuant to paragraph 5.5(1)(b) of Regulation 81-102 respecting Investment Funds, CQLR c. V-1.1, r. 39,(Regulation 81-102) (the Approval Sought).

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, CQLR c. V-1.1, r. 1, (Regulation 11-102) is intended to be relied upon in each of the jurisdictions of Canada other than the Jurisdictions; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in Regulation 14-101 respecting Definitions, CQLR c. V-1.1, r.3, Regulation 11-102, Regulation 81-101 respecting Mutual Funds Prospectus Disclosure, CQLR c.V-1.1, r. 38, (Regulation 81-101), Regulation 81-102, Regulation 81-106 respecting Investment Fund Continuous Disclosure, CQLR c. V-1.1, r.42, (Regulation 81-106) and Regulation 81-107 respecting Independent Review Committee for Investment Funds, CQLR c. V-1.1, r.43, (Regulation 81-107) have the same meaning if used in this decision, unless otherwise defined.

Continuing Fund or Continuing Funds means, individually or collectively, NBI Floating Rate Income Fund, NBI Unconstrained Fixed Income Fund, NBI High Yield Bond Fund, NBI Jarislowsky Fraser Select Income Fund, NBI Secure Portfolio, NBI Conservative Portfolio, NBI Moderate Portfolio, NBI Balanced Portfolio, NBI Growth Portfolio, NBI Jarislowsky Fraser Select Canadian Equity Fund, NBI Small Cap Fund, NBI Global Real Assets Income Fund, NBI SmartData U.S. Equity Fund, NBI Canadian Equity Index Fund, NBI U.S. Equity Index Fund, NBI International Equity Index Fund, NBI Canadian Bond Private Portfolio and NBI Global Tactical Bond Fund.

Effective Date means on or about May 21, 2021, May 28, 2021 or June 4, 2021, in each case being the anticipated date of each Merger, as identified in Schedule A.

Fee Structure Merger means the Merger of NBI Jarislowsky Fraser Select Balanced Fund into NBI Jarislowsky Fraser Select Income Fund.

Fund or Funds means, individually or collectively, the Terminating Funds and the Continuing Funds.

Investment Objective Mergers means each of the Mergers, other than the Merger of NBI High Yield Bond Private Portfolio into NBI High Yield Bond Fund, NBI Canadian Small Cap Equity Private Portfolio into NBI Small Cap Fund, NBI Real Assets Private Portfolio into NBI Global Real Assets Income Fund, and NBI Municipal Bond Plus Private Portfolio into NBI Canadian Bond Private Portfolio.

IRC means the independent review committee for the Funds.

Special Meeting Materials means the notice of meeting, management information circular and a proxy related to the special meetings of securityholders held in connection with the Mergers.

Special Meeting means the special meetings of securityholders to be held on or about May 17, 2021 in connection with the Mergers.

Taxable Mergers means the Merger of NBI Tactical Mortgage & Income Fund into NBI Floating Rate Income Fund, NBI High Yield Bond Private Portfolio into NBI High Yield Bond Fund, NBI Dividend Fund into NBI Conservative Portfolio, NBI Canadian Small Cap Equity Private Portfolio into NBI Small Cap Fund, NBI Real Assets Private Portfolio into NBI Global Real Assets Income Fund, NBI Canadian Index Fund into NBI Canadian Equity Index Fund, NBI U.S. Index Fund into NBI U.S. Equity Index Fund, NBI U.S. Currency Neutral Index Fund into NBI U.S. Equity Index Fund, NBI International Index Fund into NBI International Equity Index Fund, NBI International Currency Neutral Index Fund into NBI International Equity Index Fund, NBI Canadian Diversified Bond Private Portfolio into NBI Canadian Bond Private Portfolio, NBI Municipal Bond Plus Private Portfolio into NBI Canadian Bond Private Portfolio, NBI Global Bond Fund into NBI Global Tactical Bond Fund, and Meritage Tactical ETF Fixed Income Portfolio into NBI Global Tactical Bond Fund.

Voting Continuing Funds means NBI International Equity Index Fund, NBI Canadian Equity Index Fund and NBI U.S. Equity Index Fund.

Representations

This decision is based on the following facts represented by the Filer:

The Filer and the Funds

1. The Filer is a corporation governed by the laws of Canada with its head office in Montréal, Québec.

2. The Filer acts as the investment fund manager of the Funds and is registered as an investment fund manager in each of the provinces of Québec, Ontario and Newfoundland and Labrador.

3. The Funds are open-ended mutual funds established as trusts under the laws of Ontario or Québec.

4. Other than securities of the private series (the Private Series) of certain of the Funds (which Private Series are offered by way of private placement), securities of the Funds are currently qualified for sale under the simplified prospectus and annual information form dated May 14, 2020, as amended on July 21, 2020, October 9, 2020, November 18, 2020, February 11, 2021 and March 9, 2021 and the related fund facts documents (the Fund Facts), as such documents may be amended or renewed (collectively, the Offering Documents).

5. Investors in Private Series of the Terminating Funds will receive Private Series securities of the corresponding Continuing Funds as a result of the relevant Mergers, which securities will be issued pursuant to an exemption from the prospectus requirement. There are no fund facts for the Private Series of the relevant Continuing Funds as these securities are not offered for sale pursuant to the Offering Documents.

6. Each of the Funds is a reporting issuer under the securities legislation of each of the jurisdictions of Canada and is subject to the requirements of Regulation 81-102.

7. Neither the Filer nor the Funds are in default of securities legislation in the jurisdictions of Canada.

Reasons for Approval Sought

8. The Approval Sought 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 Regulation 81-102 (identified in Schedule A of this decision as applicable to each relevant Merger):

(a) the fundamental investment objectives of the Continuing Funds in the Investment Objective Mergers are not substantially similar to the investment objectives of their corresponding Terminating Funds, as required by subparagraph 5.6(1)(a)(ii);

(b) if securityholders of the Continuing Fund in the Fee Structure Merger approve the proposed fixed administration fee, then the fee structure of the Continuing Fund in the Fee Structure Merger is not substantially similar to the fee structure of its corresponding Terminating Fund, as required by subparagraph 5.6(1)(a)(ii);

(c) the Taxable Mergers will not be completed as a "qualifying exchange" or other tax-deferred transaction under the Income Tax Act (Canada), R.S.C. 1985, c. 1 (5th Supp.), (the Tax Act), as required by paragraph 5.6(1)(b); and

(d) the materials sent to Private Series securityholders of the Terminating Funds will not include the most recently filed fund facts of the Private Series of its corresponding Continuing Fund, as required by subparagraph 5.6(1)(f)(ii).

9. Except as described above, the Mergers comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of Regulation 81-102.

The Mergers

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

	Terminating Fund	Continuing Fund
1	NBI Tactical Mortgage & Income Fund	NBI Floating Rate Income Fund
2	NBI Strategic U.S. Income and Growth Fund	NBI Unconstrained Fixed Income Fund
3	NBI High Yield Bond Private Portfolio	NBI High Yield Bond Fund
4	NBI Jarislowsky Fraser Select Balanced Fund	NBI Jarislowsky Fraser Select Income Fund
5	National Bank Secure Diversified Fund	NBI Secure Portfolio
6	NBI Dividend Fund	NBI Conservative Portfolio
7	National Bank Conservative Diversified Fund	NBI Conservative Portfolio
8	National Bank Moderate Diversified Fund	NBI Moderate Portfolio
9	National Bank Balanced Diversified Fund	NBI Balanced Portfolio
10	National Bank Growth Diversified Fund	NBI Growth Portfolio
11	NBI Canadian Equity Fund	NBI Jarislowsky Fraser Select Canadian Equity Fund
12	NBI Canadian Small Cap Equity Private Portfolio	NBI Small Cap Fund
13	NBI Real Assets Private Portfolio	NBI Global Real Assets Income Fund
14	NBI U.S. Dividend Fund	NBI SmartData U.S. Equity Fund
15	NBI Canadian Index Fund	NBI Canadian Equity Index Fund
16	NBI U.S. Index Fund	NBI U.S. Equity Index Fund
17	NBI U.S. Currency Neutral Index Fund	NBI U.S. Equity Index Fund
18	NBI International Index Fund	NBI International Equity Index Fund
19	NBI International Currency Neutral Index Fund	NBI International Equity Index Fund
20	NBI Canadian Diversified Bond Private Portfolio	NBI Canadian Bond Private Portfolio
21	NBI Municipal Bond Plus Private Portfolio	NBI Canadian Bond Private Portfolio
22	NBI Global Bond Fund	NBI Global Tactical Bond Fund
23	Meritage Tactical ETF Fixed Income Portfolio	NBI Global Tactical Bond Fund

11. In accordance with section 11.2 of Regulation 81-106, a press release announcing the proposed Mergers was issued and filed on SEDAR on March 1, 2021 and a material change report and amendments to the Offering Documents with respect to the Mergers were filed via SEDAR on March 10, 2021.

12. In accordance with paragraph 5.3(1)(a) of Regulation 81-107, the Filer presented the terms of the proposed Mergers to the IRC at a meeting held on February 24, 2021. The IRC reviewed the potential conflict of interest matters related to the proposed Mergers, and the process to be followed in connection with each Merger, and has provided a positive recommendation after determining that the proposed action of the Filer in implementing each such Merger would achieve a fair and reasonable result for each Fund.

13. Securityholders of the Terminating Funds and of the Voting Continuing Funds will be asked to approve the applicable Mergers at the Special Meeting.

14. Pursuant to a decision dated September 8, 2016 (the Notice-and-Access Decision), the Filer has obtained an exemption from the requirement in paragraph 12.2(2)(a) of Regulation 81-106 to send an information circular and proxy-related materials to the securityholders of the Terminating Funds and Voting Continuing Funds and instead allows each such Fund to make use of a notice-and-access process.

15. On April 16, 2021, the notice prescribed by the Notice-and-Access Decision (the Notice-and-Access Document) and the form of proxy were sent to securityholders of each Terminating Fund and Voting Continuing Fund. Fund Facts relating to the relevant series of the Continuing Funds were sent to securityholders of the corresponding Terminating Funds along with the Notice-and-Access Document and form of proxy.

16. The Special Meeting Materials were filed via SEDAR and posted on the Filer's website on April 16, 2021.

17. The Special Meeting Materials, along with the Fund Facts of the Continuing Funds, provide sufficient information to securityholders to permit them to make an informed decision about the Mergers and to vote on each applicable Merger.

18. 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 before the Effective Date.

19. Following the Mergers, all systematic purchase plans and redemption plans that were established for each Terminating Fund will be continued on a series-for-series basis in the applicable Continuing Fund, in accordance with the same terms and conditions as the original systematic plan, unless a securityholder advises the Filer otherwise.

Merger Steps

20. The Taxable Mergers will be structured as follows:

(a) Prior to effecting a Merger, if required, each Terminating Fund will sell any securities in its portfolio that do not meet the investment objectives and investment strategies of the applicable Continuing Fund. As a result, some of the Terminating Funds 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) On or prior to the effective date of each applicable Merger, each Terminating Fund will distribute a sufficient amount of its net income and net realized capital gains, if any, to securityholders to ensure that it will not be subject to tax for its current tax year.

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

(d) Each Terminating Fund will sell its investment portfolio and other assets to its corresponding Continuing Fund in exchange for various series of units of the Continuing Fund that correspond to the outstanding series of units of the Terminating Fund.

(e) Each Continuing Fund will not assume any liabilities of the applicable 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.

(f) The units of each Continuing Fund received by the applicable Terminating Fund will have an aggregate net asset value equal to the value of the portfolio assets and other assets that the Continuing Fund is acquiring from the Terminating Fund, and the units of the Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the effective date of the applicable Merger.

(g) Immediately thereafter, units of each Continuing Fund received by the applicable Terminating Fund will be distributed to securityholders of the Terminating Fund in exchange for their units in the Terminating Fund on a dollar for dollar and series-by-series basis, as applicable.

(h) As soon as reasonably possible, the applicable Terminating Fund will be wound up.

21. The capital gains and capital losses on the portfolio assets of the Terminating Funds involved in the Taxable Mergers will be realized, and any net capital gains will be distributed to securityholders of such Terminating Funds. The securityholders of such Terminating Funds will realize any accrued capital gain or capital loss on their units of such Terminating Funds.

22. The Mergers of NBI U.S. Index Fund and NBI U.S. Currency Neutral Index Fund into NBI U.S. Equity Index Fund cannot be effected as tax-deferred mergers, as the Continuing Fund is not a mutual fund trust and thus the Mergers cannot meet the requirements of a qualifying exchange under the Tax Act.

23. For the Taxable Mergers other than those described in paragraph 22, the Filer has assessed the impact of a taxable transaction on each of the Terminating Funds and Continuing Funds and upon the securityholders in the Terminating Funds and believes that it is appropriate to proceed with a taxable transaction for the following reasons:

(a) the majority of investors in the Terminating Funds hold their units in registered plans and a taxable merger is neither beneficial nor detrimental to such investors;

(b) roughly half of the remaining investors, who hold their units of the Terminating Funds outside a registered plan, are in a loss position and triggering a loss can be beneficial as such losses can be used to offset any capital gains realized in the same year or any of the previous three years, and thus immediately reduce their tax liability; and

(c) the remainder of the taxable investors in each Terminating Fund are in a gain position and will be provided with Special Meeting Materials disclosing the tax impact of the Merger and will have the opportunity to redeem their units prior to the effective date of the Merger or to vote against the proposed Merger.

24. The remaining Mergers will be structured as follows:

(a) Prior to effecting a Merger, if required, each Terminating Fund will sell any securities in its portfolio that do not meet the investment objectives and investment strategies of the applicable Continuing Fund. As a result, some of the Terminating Funds 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) On or prior to the effective date of each applicable Merger, each Terminating Fund and its corresponding Continuing Fund may distribute its net realized capital gains and income, if any, to its securityholders.

(c) Each Terminating Fund will jointly elect with its corresponding Continuing Fund that the Merger be a "qualifying exchange" as defined in the Tax Act.

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

(e) Each Terminating Fund will sell its investment portfolio and other assets to its corresponding Continuing Fund in exchange for various series of units of the Continuing Fund that correspond to the outstanding series of units of the Terminating Fund.

(f) Each Continuing Fund will not assume any liabilities of the applicable 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.

(g) The units of each Continuing Fund received by the applicable Terminating Fund will have an aggregate net asset value equal to the value of the portfolio assets and other assets that the Continuing Fund is acquiring from the Terminating Fund, and the units of the Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the effective date of the applicable Merger.

(h) Immediately thereafter, units of each Continuing Fund received by the applicable Terminating Fund will be distributed to securityholders of the Terminating Fund in exchange for their units in the Terminating Fund on a dollar-for-dollar and series-by-series basis, as applicable.

(i) As soon as reasonably possible, the applicable Terminating Fund will be wound up.

25. The Filer will pay for the costs of the Mergers. These costs consist mainly of brokerage charges associated with the Merger-related trades that occur both before and after the effective date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.

26. No sales charges, redemption fees or other fees or commissions will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of its applicable Terminating Fund.

27. 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 objectives of the applicable Continuing Fund.

28. The Mergers do not require approval of securityholders of the Continuing Funds, other than the Voting Continuing Funds, as the Filer has determined that each Merger, other than the Mergers involving the Voting Continuing Funds, does not constitute a material change to any Continuing Fund other than the Voting Continuing Funds.

Benefits of Mergers

29. In the opinion of the Filer, the Mergers will be beneficial to securityholders of the Funds 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) the Mergers may eliminate similar fund offerings which may have the effect of reducing the administrative and regulatory costs of operating each Terminating Fund and Continuing Fund as separate funds;

(c) following the Mergers, each Continuing Fund will have a portfolio of greater value, which may allow for increased portfolio diversification opportunities; and

(d) each Continuing Fund, as a result of its greater size, may benefit from its larger profile in the marketplace by potentially attracting more securityholders and enabling it to maintain a "critical mass".

30. In addition to the reasons set out in paragraph 29, the Filer believes that the Mergers are beneficial to securityholders of each of the Terminating Funds and the Continuing Funds for the following reasons (identified in Schedule A of this decision as applicable to each relevant Merger):

(a) in certain cases, the Continuing Funds have delivered stronger long term performance than the applicable Terminating Funds;

(b) in certain cases, the Continuing Fund may offer a more broad approach to investing;

(c) in certain cases, there is significant overlap between portfolio holdings of the Terminating Fund and portfolio holdings of the Continuing Fund; and

(d) in certain cases, management fees and/or fixed administration fees will be lower for the Continuing Fund.

31. The Approval Sought is not detrimental to the protection of investors.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.

The decision of the Decision Makers under the Legislation is that the Approval Sought is granted in respect of each Merger, provided that the Filer obtains the prior approval of the securityholders of the Terminating Fund and, if applicable, of the Voting Continuing Fund, for the Merger, at a special meeting held for that purpose.

Schedule "A"

{*} The Continuing Fund currently has a floating expense structure and thus the fee structures of the Terminating Fund and the Continuing Fund are substantially similar. However, the Filer proposes to implement a fixed administration fee structure for the Continuing Fund, subject to obtaining approval from the relevant securityholders of the Continuing Fund. As a result, if approved and implemented, the fee structure of the Continuing Fund will not be substantially similar to the fee structure of the Terminating Fund.

⁽¹⁾ applicable for certain series only.