Ninepoint Partners LP et al.
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 terminating funds and continuing funds do not have substantially similar fee structures –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).
May 3, 2019
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
NINEPOINT PARTNERS LP
NINEPOINT ENHANCED BALANCED CLASS,
NINEPOINT FOCUSED U.S. DIVIDEND CLASS
(each, a Terminating Fund and collectively, the Terminating Funds)
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 (collectively, the Mergers, and each, a Merger) of Ninepoint Enhanced Balanced Class into Ninepoint Enhanced Balanced Fund, and the proposed merger of Ninepoint Focused U.S. Dividend Class into Ninepoint Global Infrastructure Fund (together with Ninepoint Enhanced Balanced Fund, the Continuing Funds, and each, a Continuing Fund) 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 organized 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.
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. The Continuing Funds are open‑ended mutual fund trusts established under the laws of Ontario.
7. 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).
8. Each of the Funds is a reporting issuer under the applicable securities legislation in the Canadian Jurisdictions.
9. The Funds are not in default of any requirement of securities legislation in any of the Canadian Jurisdictions.
10. 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.
11. 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.
Reasons for Approval Sought
12. 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 Focused U.S. Dividend 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 Focused U.S. Dividend Class;
(b) In connection with the merger of Ninepoint Focused U.S. Dividend Class into Ninepoint Global Infrastructure Fund, the fee structure of Series A1 and Series F1 of Ninepoint Focused U.S. Dividend Class is not, or may not be considered to be “substantially similar” to the fee structure of Series A and Series F, respectively, of Ninepoint Global Infrastructure Fund; and
(c) The Mergers will not be completed as a “qualifying exchange” under the Income Tax Act (Canada) (the Tax Act).
13. The investment objectives of Ninepoint Enhanced Balanced Class and its respective Continuing Fund are as follows:
Ninepoint Enhanced Balanced Class
Ninepoint Enhanced Balanced Fund
The investment objective of Ninepoint Enhanced Balanced Class is to achieve long term capital growth and income. The Fund invests primarily in equities and fixed-income securities of Canadian issuers, and may invest a portion of its assets in foreign equities and fixed-income securities. The Fund will seek to enhance income generation by employing investment strategies such as short selling and options trading.
The investment objective of Ninepoint Enhanced Balanced Fund is to achieve long term capital growth and current income. The Fund invests primarily in Canadian equities, fixed-income securities of Canadian issuers, and foreign equities and foreign fixed-income securities.
14. The investment objectives of Ninepoint Focused U.S. Dividend Class and its respective Continuing Fund are as follows:
Ninepoint Focused U.S. Dividend Class
Ninepoint Global Infrastructure Fund
The investment objective of Ninepoint Focused U.S. Dividend Class is to provide consistent income and capital appreciation by investing primarily in a diversified portfolio of dividend yielding U.S. equities.
The investment objective of Ninepoint Global Infrastructure Fund is primarily to maximize risk adjusted long-term returns and secondarily to achieve a high level of income. The Fund focuses on achieving growth of capital through securities selection and pursues a long-term investment program with the aim of generating capital gains. The Fund seeks to provide a moderate level of volatility and a low degree of correlation to other asset classes through diversifying across a relatively concentrated group of global infrastructure stocks.
15. The management fee rate of each series of each Terminating Fund is the same as the management fee of the corresponding series of its applicable Continuing Fund, except in the case of Series A1 and Series F1 shares of Ninepoint Focused U.S. Dividend Class, which have management fees of 1.95% and 0.95%, respectively. As Ninepoint Global Infrastructure Fund does not have corresponding Series A1 and Series F1 units, Series A1 and Series F1 securityholders will receive Series A and Series F units, respectively, of Ninepoint Global Infrastructure Fund, which have management fees of 2.00% and 1.00%, respectively, as a result of the Merger.
16. 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.
17. 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
18. The Filer intends to reorganize the Funds as follows:
(a) Ninepoint Enhanced Balanced Class will merge into Ninepoint Enhanced Balanced Fund; and
(b) Ninepoint Focused U.S. Dividend Class will merge into Ninepoint Global Infrastructure Fund.
19. 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 of the Mergers.
20. No sales charges will be payable by securityholders of the Terminating Funds in connection with the Mergers.
21. 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.
22. 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 positive recommendation on March 21, 2019, and April 16, 2019, after determining that each proposed Merger, if implemented, would achieve a fair and reasonable result for each Fund.
23. 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 March 22, 2019. A material change report with respect to the proposed Mergers was filed via SEDAR on March 22, 2019.
24. The Filer has concluded that the Mergers will not be a “material change” for either of the Continuing Funds.
25. A notice of meeting, a management information circular, a proxy and fund facts document(s) for the Continuing Funds in connection with special meetings of securityholders will be mailed to securityholders of the Terminating Funds commencing on or about May 1, 2019 and will be concurrently filed via SEDAR.
26. Securityholders of the Terminating Funds will be asked to approve the Mergers at special meetings to be held on or about May 23, 2019.
27. The Mergers will also be approved by the sole common voting shareholder of the Corporation, as required under applicable corporate law.
28. 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.
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. The Mergers have been approved by the board of directors of each of the Filer and the Corporation.
31. 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 May 31, 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.
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 will be described in the management information circular so that the securityholders of the applicable Terminating Funds can consider this information before voting on the Mergers. The meeting materials will also describe the various ways in which investors can 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. The proposed Mergers of each Terminating Fund into the applicable Continuing Fund will be structured as follows:
(a) Prior to effecting each Merger, the Terminating Fund will sell securities in its portfolio that do not meet the investment objectives and investment strategies of the applicable Continuing Fund. As a result, the Terminating Fund may temporarily hold cash or cash equivalents and may not be fully invested in accordance with its investment objectives for a brief period of time prior to the Merger being effected.
(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 portfolio securities, cash and other assets of the Terminating Fund will be transferred by the Corporation to the Continuing Fund in exchange for units of the Continuing Fund.
(e) The Continuing Fund will not assume any liabilities of the Terminating Fund and the Corporation will retain sufficient assets to satisfy the Terminating Fund’s estimated liabilities, if any, as of the Effective Date of the applicable Merger.
(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. In exchange for their current securities, securityholders of each series of each Terminating Fund, other than Series A1 and Series F1 of Ninepoint Focused U.S. Dividend Class, will receive securities of the equivalent series of the Continuing Fund. Series A1 and Series F1 securityholders of Ninepoint Focused U.S. Dividend Class will receive securities of Series A and Series F, respectively, of the Continuing Fund.
(g) 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.
Benefits of the Mergers
35. 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) there is significant overlap between the portfolio holdings of Ninepoint Enhanced Balanced Class and the portfolio holdings of the corresponding Continuing Fund, and thus 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, each of the Continuing Funds will have a portfolio of greater value, which may allow for increased portfolio diversification opportunities if desired; and
(e) following the Mergers, each of the Continuing Funds, as a result of its greater size, may benefit from its larger profile in the marketplace.
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.
Investment Funds and Structured Products Branch
Ontario Securities Commission