Headnote NP 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of mutual fund mergers – approval required because mergers do not meet the criteria for pre-approved re-organizations and transfers in National Instrument 81-102 – continuing funds have different investment objectives than terminating funds – securityholders of terminating funds and continuing funds to vote on approval of the mergers
Applicable Legislative Provisions
National Instrument 81-102 – Mutual Funds, ss. 5.5(1)(b), 5.6(1), 5.7(1)(b) and 19.1 (See attached file: Invesco Trimark Ltd_8-102_DecisionDocument_2011.doc)
July 19, 2011
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 INVESCO TRIMARK LTD. (the "Manager")
AND
INVESCO CORE GLOBAL EQUITY CLASS AND TRIMARK GLOBAL HEALTH SCIENCES CLASS (each a "Terminating Fund", and together, the "Terminating Funds")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for approval under subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") to merge each Terminating Fund into the Continuing Fund opposite its name below (the "Proposed Mergers").
Terminating Fund
Continuing Fund
Invesco Core Global Equity Class (“Core Global Class”)
Invesco Intactive Maximum Growth Portfolio Class (“Intactive Maximum Growth Class”)
Trimark Global Health Sciences Class (“Trimark Health Class”)
Trimark U.S. Companies Class (“Trimark U.S. Class”)
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 Manager 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 all of the other provinces and territories of Canada.
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 Manager:
The Manager is a corporation amalgamated under the laws of Ontario. The Manager is an indirect wholly-owned subsidiary of Invesco Ltd., a global investment manager, and is not in default of applicable securities legislation in any jurisdiction. The head office of the Manager is located in Toronto, Ontario.
The Manager is the manager of each of the Terminating Funds and the Continuing Funds (the "Funds").
Each of the Funds is a separate class of Invesco Corporate Class Inc., a mutual fund corporation incorporated by articles of incorporation under the laws of Ontario on October 4, 1994.
Shares of the Funds, other than Intactive Maximum Growth Class, are currently qualified for sale by a simplified prospectus and annual information form dated August 11, 2010, as amended, which have been filed and receipted in all of the provinces and territories of Canada.
Shares of Intactive Maximum Growth Class are currently qualified for sale by simplified prospectus and annual information form dated April 19, 2011, as amended, which have been filed and accepted in all of the provinces and territories of Canada.
Each of the Funds is a reporting issuer under applicable securities legislation of each province and territory of Canada and is not in default of applicable securities legislation in any jurisdiction.
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 by NI 81-102.
The net asset value for each series of the Funds is calculated on a daily basis on each day that The Toronto Stock Exchange is open for trading.
Pre-approval of the Proposed Mergers under section 5.6 of NI 81-102 is not available as a reasonable person would not consider the fundamental investment objectives of the relevant Terminating Fund and Continuing Fund in each Proposed Merger to be substantially similar.
The Manager will be seeking the approval of shareholders of each of the Terminating Funds pursuant to subsection 5.1(f) of NI 81-102. In addition, the Manager will be seeking the approval of shareholders of the Continuing Funds pursuant to section 5.1(g) of NI 81-102 and the Business Corporations Act (Ontario).
As required by the Business Corporations Act (Ontario), Invesco Corporate Class Voting Trust I and Invesco Corporate Class Voting Trust II, the current shareholders of all of the issued and outstanding common shares of Corporate Class, will be asked to approve the Proposed Mergers.
Except as described above, the Proposed Mergers meet all of the other criteria for pre-approved reorganizations and transfers under section 5.6 of NI 81-102.
Pursuant to the Proposed Mergers, other than Series I shares of Core Global Class, shareholders will receive shares in the same series of the applicable Continuing Fund as they currently own in the Terminating Fund.
Pursuant to the Proposed Mergers, shareholders of Series I shares of Core Global Class will receive Series A shares of Intactive Maximum Growth Class.
No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of the applicable Terminating Fund.
The portfolios and other assets of the Terminating Funds to be acquired by the applicable Continuing Fund arising from the Proposed Mergers are currently, or will be, acceptable, prior to the effective date of the Proposed Mergers, to the portfolio advisers of the applicable Continuing Fund and are or will be consistent with the investment objectives of the applicable Continuing Fund.
On May 20, 2011, the Manager issued a press release announcing the Proposed Mergers, the proposed date (July 25, 2011) for the special shareholders’ meetings to vote on the Proposed Mergers and the proposed merger date (close of business on or about July 29, 2011). A material change report relating to the Proposed Mergers were filed via SEDAR on May 26, 2011 and amendments to the simplified prospectuses and annual information forms of the Funds were filed via SEDAR on May 30, 2011.
On June 29, 2011, the Manager issued a press release announcing that, as a result of the Canada Post service disruption, the special shareholders’ meetings and proposed merger date were postponed to August 2, 2011 and close of business August 5, 2011, respectively. A material change report relating to the postponement were filed via SEDAR on July 8, 2011 and amendments to the simplified prospectuses and annual information forms of the Funds were filed via SEDAR on July 4, 2011.
As required by section 5.1(g) of NI 81-102 and the Business Corporations Act (Ontario), shareholders of the Continuing Funds will also be mailed the Notices of Meetings, Management Information Circulars and Proxies in connection with the meetings of shareholders, and asked to approve the Proposed Mergers at meetings to be held on August 2, 2011.
On June 1, 2004, in connection with a prior fund merger, the Manager received exemptions from the requirement to deliver:
(a) the current simplified prospectus of the continuing fund to shareholders of terminating funds in connection with all future mergers of mutual funds managed by the Manager (the "Future Mergers") pursuant to section 5.6(1)(f)(ii) of NI 81-102; and
(b) the most recent annual and interim financial statements of the continuing fund to securityholders of the terminating funds in connection with all Future Mergers pursuant to section 5.6(1)(f)(ii) of NI 81-102.
(The relief outlined in (a) and (b) is collectively referred to as the "Prospectus and Financial Statement Delivery Relief".)
- In accordance with the Prospectus and Financial Statement Delivery Relief, the material that will be sent to shareholders of the Terminating Funds will include a tailored simplified prospectus consisting of:
(a) the current Part A of the simplified prospectus of the applicable Continuing Fund, and
(b) the current Part B of the simplified prospectus of the applicable Continuing Fund.
- In accordance with the Prospectus and Financial Statement Delivery Relief:
(a) the management information circular sent to shareholders provides sufficient information about the relevant Proposed Merger to permit shareholders to make an informed decision about the Proposed Merger;
(b) the management information circular sent to shareholders with respect to the relevant Proposed Merger prominently discloses that shareholders can obtain the most recent interim and annual financial statements of the applicable Continuing Fund by accessing the SEDAR website at www.sedar.com, by accessing the Manager 's website, by calling the Manager 's toll-free telephone number servicing shareholders both in English and French, or by faxing a request to the Manager;
(c) upon request by a shareholder for financial statements, the Manager will make best efforts to provide the shareholder with financial statements of the applicable Continuing Fund in a timely manner so that the shareholder can make an informed decision regarding the relevant Proposed Merger; and
(d) each Terminating Fund and Continuing Fund has an unqualified audit report in respect of its last completed financial period.
Shareholders of a Terminating Fund will continue to have the right to redeem securities of the Terminating Fund for cash at any time up to the close of business on the effective date of the Proposed Mergers. Effective close of business August 2, 2011, the Terminating Funds will cease distribution of securities (including purchases under existing pre-authorized chequing plans which will run in the Continuing Fund on the first business day following the Merger Date). Following the Mergers, all systematic investment programs and systematic withdrawal programs that had been established with respect to the Terminating Funds, will be re-established on a series-for-series basis in the Continuing Fund (except for Series I shares of Core Global Class which will be re-established into Series A shares of Intactive Maximum Growth Class) unless shareholders advise the Manager otherwise. Shareholders may change or cancel any systematic program at any time and shareholders of Terminating Funds who wish to establish one or more systematic programs in respect of their holdings in the Continuing Fund may do so following the Proposed Mergers.
The notice of meeting, form of proxy and management information circular were mailed to shareholders of the Funds on or before July 11, 2011 and were filed via SEDAR on July 11, 2011.
The management information circular states that (a) shares of the Continuing Funds acquired by shareholders upon the Proposed Mergers are subject to the same redemption charges, to which their shares of the Terminating Funds were subject prior to the Proposed Merger; and (b) any redemption fees payable in connection with shares purchased under the deferred sales charge option when shareholders redeem shares of the Terminating Fund will apply.
The Manager believes that the Proposed Merger of Core Global Class into Intactive Maximum Growth Class is in the best interests of the shareholders of:
(a) Core Global Class as Intactive Maximum Growth Class provides enhanced asset class and management style diversification at lower management and advisory fees; and
(b) Intactive Maximum Growth Class as following the Proposed Merger, shareholders will hold shares in a larger, more viable fund.
- The Manager believes that the Proposed Merger of Trimark Health Class into Trimark U.S. Class is in the best interests of the shareholders of:
(a) Trimark Health Class as Trimark U.S. Class provides enhanced industry sector diversification and following the Proposed Merger shareholders will hold shares in a larger, more viable fund; and
(b) Trimark U.S. Class as following the Proposed Merger, shareholders will hold shares in a larger, more viable fund.
Accordingly, the Manager recommends that shareholders of the Funds vote in favour of the Proposed Mergers.
The Funds' independent review committee ("IRC") has reviewed and made a positive recommendation with respect to the Mergers, having determined that the Mergers, if implemented, achieve a fair and reasonable result for each Terminating Fund and the Continuing Fund. The decision of the IRC was included in the management information circular as required by section 5.1(2) of National Instrument 81-107 – Independent Review Committee for Investment Funds.
The Proposed Mergers will each be a tax deferred transaction under subsection 86(1) of the Income Tax Act (Canada).
Shareholders of the Terminating Funds will be provided with information about the differences between the Terminating Funds and the Continuing Funds as well as the tax implications of the Proposed Mergers in the management information circular, so that the shareholders of the Terminating Funds may consider this information before voting on the Proposed Mergers.
The Manager will pay for the costs of the Proposed Mergers. These costs consist mainly of brokerage charges associated with the trades that occur both before and after the date of the Proposed Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.
Each Terminating Fund is expected to merge into the applicable Continuing Fund on or about the close of business on August 5, 2011 and the Continuing Funds will continue as publicly offered open-end mutual funds governed by the laws of Ontario.
The Proposed Mergers will be structured as follows:
(a) the Manager anticipates that there will be a period of approximately 3 days between the shareholder meetings at which the shareholders will vote on the Proposed Mergers and the implementation of the Proposed Mergers which receive all necessary approvals. If all necessary approvals are obtained, prior to the date of the Proposed Mergers, each of the Terminating Funds will liquidate all of the assets in its portfolio that the portfolio manager(s) of the relevant Continuing Fund do not wish to have in that Continuing Fund, and may hold the proceeds in cash, money market instruments, securities of affiliated money market funds, bonds, other debt securities or in the case of Core Global Class, units of Invesco Intactive Maximum Growth Portfolio, underlying fund to Intactive Maximum Growth Class. Accordingly, the Terminating Funds may not be fully invested in accordance with their investment objectives for this brief period of time prior to its Proposed Merger;
(b) each of the Terminating Funds will satisfy or otherwise make provisions for any liabilities attributable to it out of the assets attributable to it;
(c) the value of the underlying portfolio of assets attributable to each of the Terminating Funds will be determined at the close of business on the effective date of the articles of amendment of Corporate Class that change the shares of each of the Terminating Funds to shares of the relevant Continuing Fund;
(d) all of the issued and outstanding shares of each of the Terminating Funds, other than Series I of Core Global Class, will be converted into shares of the relevant Continuing Fund on a dollar-for-dollar and series-by-series basis and distributed to the shareholders of the relevant Terminating Fund;
(e) all issued and outstanding Series I shares of Core Global Class, will be converted into Series A shares of Intactive Maximum Growth Class on a dollar-for-dollar basis and distributed to the shareholders of Core Global Class;
(f) the shares of the Continuing Fund received by each shareholder of the relevant Terminating Fund will have the same aggregate net asset value as the shares of the Terminating Funds held by that shareholder on the effective date of the relevant Proposed Merger;
(f) the aggregate net asset value of all of the shares of a Continuing Fund received by all shareholders of the relevant Terminating Fund will equal the value of the portfolio and other assets attributable to that Terminating Fund, and the shares of the Continuing Fund will be issued at the applicable series net asset value per share of the relevant Continuing Fund as of the close of business on the effective date of the relevant Proposed Merger;
(g) the underlying portfolio of assets attributable to each of the Terminating Funds will be included in the underlying portfolio of assets attributable to the relevant Continuing Fund; and
(h) as soon as reasonably possible, the shares of each of the Terminating Funds will be cancelled and the Terminating Funds will be terminated.
- As investors holding Series A shares of Intactive Maximum Growth Class will receive a management fee rebate equal to the difference between the Series A management fee disclosed in the Intactive Maximum Growth Class’ simplified prospectus and the management fee currently paid by investors of Series I shares of Core Global Class, the Manager submits that from an investor perspective the fee structures of Series I shares of Core Global Class and Series A shares of Intactive Maximum Growth Class (combined with the management fee rebates) are substantially similar.
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 Proposed Mergers are approved.
“Darren McKall”
Darren McKall
Manager, Investment Funds Branch
Ontario Securities Commission
SEDAR #1749920
Headnote
NP 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval of mutual fund mergers – approval required because mergers do not meet the criteria for pre-approved re-organizations and transfers in National Instrument 81-102 – continuing funds have different investment objectives than terminating funds – securityholders of terminating funds and continuing funds to vote on approval of the mergers
Applicable Legislative Provisions
National Instrument 81-102 – Mutual Funds, ss. 5.5(1)(b), 5.6(1), 5.7(1)(b) and 19.1