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-approval – certain mergers have differences in investment objectives – certain mergers not a “qualifying exchange” or a tax-deferred transaction under Income Tax Act – securityholders of terminating funds provided with timely and adequate disclosure regarding the mergers.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds – sections 5.5(1)(b), 5.5(3), 5.6.
July 5, 2012
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 CANADA LTD.
(the "Manager")
AND
INVESCO GLOBAL EQUITY CLASS
AND INVESCO GLOBAL BALANCED FUND
(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 Global Equity Class (“Invesco Equity Class”)
Trimark Global Dividend Class (“Trimark Dividend Class”)
Invesco Global Balanced Fund (“Invesco Balanced Fund”)
Trimark Global Balanced Fund (“Trimark Balanced Fund”)
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 the Continuing Funds and Terminating Funds (collectively, the “Funds”) and the trustee of Invesco Balanced Fund and Trimark Balanced Fund (the “Trust Funds”).
Each of Invesco Equity Class and Trimark Dividend Class (the “Classes”) is a separate class of Invesco Corporate Class Inc. (“Corporate Class”), a mutual fund corporation incorporated by articles of incorporation under the laws of Ontario on October 4, 1994.
Each of the Trust Funds is an open-end mutual fund trust established under the laws of Ontario by a declaration of trust.
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.
Securities of the Funds are currently qualified for sale by a simplified prospectus and annual information form dated July 29, 2011, as amended, which has been filed and receipted in all of the provinces and territories of Canada.
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 in the case of the Proposed Merger of:
a) Invesco Equity Class into Trimark Dividend Class as a reasonable person would not consider the fundamental investment objectives of the Funds to be substantially similar; and
b) Invesco Balanced Fund into Trimark Balanced Fund as the Proposed Merger will not be implemented on a tax-deferred basis.
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.
The Manager believes that the Proposed Mergers of the Terminating Funds into the applicable Continuing Funds are in the best interests of securityholders of the Terminating Funds as each Terminating Fund is unable to pay all fees and expenses associated with its operations and the Manager is unwilling to continue waiving and absorbing such fees and expenses.
The Funds' independent review committee ("IRC") has reviewed and made a positive recommendation with respect to the Proposed Mergers, having determined that the Proposed Mergers, if implemented, achieve a fair and reasonable result for each 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.
On May 24, 2012, the Manager issued a press release announcing the Proposed Mergers, the proposed date (July 20, 2012) for the securityholders’ meetings to vote on the Proposed Mergers and the proposed merger date (close of business on or about July 27, 2012). A material change report and amendments to the simplified prospectus, annual information form and fund facts of the applicable Funds relating to the Proposed Mergers were filed via SEDAR on May 29, 2012.
The Manager will be seeking the approval of the Proposed Mergers by securityholders of each Terminating Fund pursuant to subsection 5.1(f) of NI 81-102 at meetings of securityholders to be held on July 20, 2012 (the “Meeting”). In addition, the Manager will also be seeking the approval of the Proposed Merger by Series A and F securityholders of Trimark Dividend Class pursuant to 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 Merger of the Classes.
On June 1, 2004, in connection with a prior fund merger, the Manager received, amongst other things, exemptions from the requirement to deliver the current simplified prospectus of the continuing fund to securityholders 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 (the "Prospectus Delivery Relief").
In accordance with the Prospectus Delivery Relief, the material that will be sent to securityholders 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 Delivery Relief, amongst other things, the management information circular sent to securityholders provides sufficient information about the relevant Proposed Merger to permit securityholders to make an informed decision about the Proposed Merger.
The management information circular delivered to securityholders of the Terminating Funds will contain the following information so that the securityholders of the Terminating Funds may consider this information before voting on the Proposed Mergers:
(a) the differences between the Terminating Funds and the Continuing Funds;
(b) the tax implications of the Proposed Mergers;
(c) a statement that the securities of the Continuing Funds acquired by securityholders upon the Proposed Mergers are subject to the same redemption charges to which their securities of the Terminating Funds were subject prior to the Proposed Merger;
(d) a statement that any redemption fees payable in connection with securities purchased under the deferred sales charge option will apply when securityholders redeem securities of the Terminating Fund; and
(e) the fact that securityholders can obtain, at no cost, the annual information form, most recently filed fund facts, the most recent interim and annual financial statements, most recent management report of fund performance that have been made public by contacting the Manager or by accessing the documents on the Manager’s website.
The notice of meeting, form of proxy and management information circular were mailed to securityholders of the Terminating Funds and Series A and F securityholders of Trimark Dividend Class on June 26, 2012 and were filed via SEDAR on June 27, 2012.
Securityholders 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 July 20, 2012, 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) other than purchases that are Canada Education Savings Grants made into registered educations savings plans. Following the Proposed 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 unless securityholders advise the Manager otherwise. Securityholders may change or cancel any systematic program at any time.
Each Terminating Fund is expected to merge into the applicable Continuing Fund on or about the close of business July 27, 2012 (the “Merger Date”) and the Continuing Funds will continue as publicly offered open-end mutual funds governed by the laws of Ontario.
The Proposed Merger of the Classes will be a tax deferred transaction under subsection 86(1) of the Income Tax Act (Canada) but the Proposed Merger of the Trust Funds will not be a tax deferred transaction.
The Proposed Merger of the Classes will be structured as follows:
(a) the Manager anticipates that there will be a period of approximately 5 business days between the Meeting and the Merger Date. If all necessary approvals are obtained, prior to the date of the Proposed Merger, Invesco Equity Class will liquidate all of the assets in its portfolio that the portfolio manager of Trimark Dividend Class does not wish to have in Trimark Dividend Class’ portfolio, and may hold the proceeds in cash, money market instruments or securities of affiliated money market funds. Accordingly, Invesco Equity Class may not be fully invested in accordance with its investment objectives for this brief period of time prior to the Proposed Merger;
(b) Invesco Equity Class 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 Invesco Equity Class will be determined at the close of business on the effective date of the filing of the articles of amendment of Corporate Class that change the securities of Invesco Equity Class to securities of Trimark Dividend Class;
(d) all of the issued and outstanding securities of Invesco Equity Class will be converted into securities of Trimark Dividend Class on a dollar-for-dollar and series-by-series basis and distributed to the securityholders of Invesco Equity Class;
(e) the securities of Trimark Dividend Class received by each securityholder of Invesco Equity Class will have the same aggregate net asset value as the securities of Invesco Equity Class held by that securityholder on the Merger Date;
(g) the aggregate net asset value of all of the securities of Trimark Dividend Class received by all securityholders of Invesco Equity Class will equal the value of the portfolio and other assets attributable to Invesco Equity Class, and the securities of Trimark Dividend Class will be issued at the applicable series net asset value per security of Trimark Dividend Class as of the close of business on the Merger Date;
(h) the underlying portfolio of assets attributable to Invesco Equity Class will be included in the underlying portfolio of assets attributable to Trimark Dividend Class; and
(i) as soon as reasonably possible, the securities of Invesco Equity Class will be cancelled.
- The Proposed Merger of the Trust Funds will be structured as follows:
(a) the Manager anticipates that there will be a period of approximately 5 business days between the Meeting and the Merger Date. If all necessary approvals are obtained, prior to the date of the Proposed Merger, Invesco Balanced Fund will liquidate all of the assets in its portfolio that the portfolio manager of Trimark Balanced Fund does not wish to have in Trimark Balanced Fund’s portfolio, and may hold the proceeds in cash, money market instruments, securities of affiliated money market funds, bonds or other debt securities. Accordingly, Invesco Balanced Fund may not be fully invested in accordance with its investment objectives for this brief period of time prior to the Proposed Merger;
(b) Invesco Balanced Fund will satisfy or otherwise make provisions for any liabilities attributable to it out of the assets attributable to it;
(c) the value of Invesco Balanced Fund’s portfolio and other assets will be determined at the close of business on the Merger Date in accordance with Invesco Balanced Fund’s declaration of trust;
(d) Trimark Balanced Fund will acquire the investment portfolio and other assets of Invesco Balanced Fund in exchange for securities of Trimark Balanced Fund;
(e) Trimark Balanced Fund will not assume the liabilities of Invesco Balanced Fund, and Invesco Balanced Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the date of the Proposed Merger;
(f) the securities of Trimark Balanced Fund received by each securityholder of Invesco Balanced Fund will have the same aggregate net asset value as the securities of Invesco Balanced Fund held by that securityholder on the Merger Date;
(g) the aggregate net asset value of all of the securities of Trimark Balanced Fund received by all securityholders of Invesco Balanced Fund will equal the value of the portfolio and other assets attributable to Invesco Balanced Fund, and the securities of Trimark Balanced Fund will be issued at the applicable series net asset value per security as of the close of business on the Merger Date;
(h) immediately thereafter, the securities of Trimark Balanced Fund received by Invesco Balanced Fund will be distributed to securityholders of Invesco Balanced Fund on a dollar‑for‑dollar and series-by-series basis in exchange for their securities in Invesco Balanced Fund; and
(i) as soon as reasonably possible following the Proposed Mergers Invesco Balanced Fund will be wound-up.
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.
No sales charges will be payable in connection with the acquisition by a Continuing Fund of the investment portfolio of the applicable Terminating Fund.
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.
“Raymond Chan”
Raymond Chan
Manager, Investment Funds
Ontario Securities Commission