Ninepoint Partners LP and Ninepoint Concentrated Canadian Equity Fund
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval of investment fund merger -- approval required because the merger does not meet all the pre-approval criteria in National Instrument 81-102 Investment Funds -- merger is not a "qualifying exchange" -- continuing fund and terminating fund do not have substantially similar investment objectives and fee structures -- securityholders of the terminating fund provided timely and adequate disclosure regarding the merger.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 5.6(1), 5.7(1)(b).
February 3, 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 NINEPOINT PARTNERS LP (THE FILER) AND NINEPOINT CONCENTRATED CANADIAN EQUITY FUND (THE TERMINATING FUND)
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) for approval of the proposed merger (the Merger) of the Terminating Fund into Ninepoint Convertible Securities Fund (the Continuing Fund, and together with the Terminating Fund, theFunds) under paragraph 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).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 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 a limited partnership under the laws of the Province of Ontario with its head office located in Toronto, Ontario.
2. The Filer is registered under the securities legislation: (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. The Filer is also registered in Ontario as a commodity trading manager.
3. The Filer is the investment fund manager of the Funds.
4. The Filer is not in default of any requirement of securities legislation in any of the Canadian Jurisdictions.
5. The Funds are open-ended mutual fund trusts established under the laws of Ontario.
6. Units of the Terminating Fund are currently qualified for sale under an amended and restated simplified prospectus, annual information form and fund facts dated October 28, 2020, and units of the Continuing Fund are currently qualified for sale under a simplified prospectus, annual information form and fund facts dated January 20, 2021 (the Continuing Fund Offering Documents).
7. Each Fund is a reporting issuer under the applicable securities legislation of the Canadian Jurisdictions.
8. The Funds are not in default of any requirement of securities legislation in any of the Canadian Jurisdictions.
9. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each Fund follows the standard investment restrictions and practices established under NI 81-102.
10. 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 of each Fund.
11. The Continuing Fund has the same risk rating as the Terminating Fund.
Reason for Approval Sought
12. The Approval Sought is required because the 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) the fundamental investment objectives of the Continuing Fund are not, or may be considered not to be, "substantially similar" to the investment objectives of the Terminating Fund;
(b) the fee structure of the Continuing Fund is not, or may be considered not to be "substantially similar" to the fee structure of the Terminating Fund; and
(c) the Merger will not be completed as a "qualifying exchange" under the Income Tax Act (Canada) (the Tax Act).
13. The investment objectives of the Terminating Fund and the Continuing Fund are as follows:
The investment objective of Ninepoint Concentrated Canadian Equity Fund is to seek to provide unitholders with long-term capital appreciation by investing primarily in a concentrated portfolio of Canadian equity securities.
The investment objective of Ninepoint Convertible Securities Fund is to seek to provide unitholders with income and long-term capital appreciation by investing primarily in a portfolio of convertible securities.
14. As a result of the Merger, Series F unitholders of the Terminating Fund will receive units of the Continuing Fund with a management fee that is 0.5% higher than the management fee charged in respect of their units of the Terminating Fund, and all unitholders of the Terminating Fund will receive units of the Continuing Fund that pays an incentive fee.
15. The Merger will be effected on a taxable basis. The Filer has determined that only 1% of unitholders of the Terminating Fund are expected to be in an unrealized gain position at the time of the Merger.
16. Except as described in this decision, the proposed Merger complies with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Merger
17. The Filer intends to reorganize by merging the Terminating Fund into the Continuing Fund such that unitholders of the Terminating Fund will become unitholders of the Continuing Fund.
18. Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund at any time up to the close of business on the business day immediately before the effective date of the Merger.
19. No sales charges will be payable by unitholders of the Terminating Fund in connection with the Merger.
20. Units of the 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.
21. 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 Merger to the IRC for a decision. The IRC reviewed the potential conflict of interest matters related to the proposed Merger and on January 13, 2021, provided its positive recommendation for the Merger, after determining that the proposed Merger, if implemented, would achieve a fair and reasonable result for each Fund.
22. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release announcing the proposed Merger was issued and filed by the Terminating Fund via SEDAR on January 20, 2021. A material change report with respect to the proposed Merger was filed via SEDAR on January 20, 2021.
23. The Merger is being treated as a material change for the Continuing Fund for securities regulatory purposes because it is anticipated that at the time of the Merger, the Terminating Fund will be larger in size than the Continuing Fund. Disclosure of the Merger was included in the Continuing Fund Offering Documents.
24. A notice of meeting, a management information circular, a proxy and fund facts documents for the Continuing Fund in connection with special meetings of unitholders are expected to be mailed to unitholders of the Terminating Fund on or about February 16, 2021 and concurrently filed via SEDAR.
25. Unitholders of the Terminating Fund will be asked to approve the Merger at a special meeting to be held on or about March 12, 2021. Unitholders of the Terminating Fund holding Series F units will be asked to approve the Merger separately as a series at the special meeting because following the Merger such holders will receive units of the Continuing Fund that have a higher management fee.
26. The Filer will pay for the costs of the Merger. These costs consist mainly of brokerage charges associated with the merger-related trades that occur both before and after the effective date of the Merger, and legal, proxy solicitation, printing, mailing and regulatory fees.
27. If all required approvals for the Merger are obtained, it is intended that the Merger will occur on or about the close of business on March 19, 2021 (the Effective Date). The Filer therefore anticipates that each unitholder of the Terminating Fund will become a unitholder of the Continuing Fund after the close of business on the Effective Date. The Continuing Fund will continue as a publicly offered open-end mutual fund.
28. The Terminating Fund will be wound up as soon as reasonably possible following the Merger, and in any event within 60 days.
29. The tax implications of the Merger, the differences between the investment objectives and the fee structures of the Funds, and the IRC's recommendation of the Merger are described in the management information circular so that the unitholders of the Terminating Fund can consider this information before voting on the Merger. The meeting materials also describe the various ways in which investors can obtain a copy of the simplified prospectus, annual information form and fund facts for the Continuing Fund.
30. In light of the disclosure in the management information circular, unitholders of the Terminating Fund have all the information necessary to determine whether the proposed Merger is appropriate for them.
31. The proposed merger of the Terminating Fund into the Continuing Fund will be structured as follows:
(a) Prior to effecting the Merger, the Terminating Fund will liquidate the securities in its portfolio. As a result, the portfolio of the Terminating Fund will temporarily hold cash or money market instruments and will not be fully invested in accordance with its investment objectives for a brief period of time prior to the Merger being effected.
(b) The Terminating Fund will use the cash it holds in its portfolio to subscribe for units of the Continuing 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 business day prior to the Effective Date of the Merger.
(c) 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 Merger.
(d) The Terminating Fund will distribute a sufficient amount of its net income and net realized capital gains, if any, to unitholders to ensure that it will not be subject to tax for its current tax year.
(e) Immediately thereafter, units of the Continuing Fund received by the Terminating Fund will be distributed to unitholders of the Terminating Fund in exchange for their units in the Terminating Fund on a dollar-for-dollar basis, as applicable. In exchange for their current units, unitholders of each series of the Terminating Fund will receive units of the equivalent series of the Continuing Fund.
(f) As soon as reasonably possible following the Merger, and in any case within 60 days following the Effective Date of the Merger, the Terminating Fund will be wound up.
Benefits of the Merger
32. The Filer believes that the Merger is beneficial to unitholders of each Fund for the following reasons:
(a) the Merger will result in a more streamlined and simplified product line-up that is easier for investors to understand;
(b) the Merger will eliminate the administrative and regulatory costs of operating each Terminating Fund and Continuing Fund as separate funds;
(c) following the Merger, the Continuing Fund will have a portfolio of greater value, which may allow for increased portfolio diversification opportunities if desired;
(d) the Continuing Fund, as a result of its greater size, may benefit from its larger profile in the marketplace; and
(e) the Merger provides unitholders of the Terminating Fund 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 unitholders of the Terminating Fund with flexibility, convenience and potential cost savings.
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 with respect to the Merger, provided that the Filer obtains the prior approval of the unitholders of the Terminating Fund for the Merger at a special meeting held for that purpose.
Manager, Investment Funds and Structured Products
Ontario Securities Commission