July 12, 2017
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 "Filer")
AND
IN THE MATTER OF INVESCO EMERGING MARKETS DEBT FUND (the “Terminating Fund”) and INVESCO GLOBAL BOND FUND (“Continuing Fund”, individually a “Fund”, or collectively, the “Funds”)
Decision
Background
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 of the principal regulator (the "Legislation") approving the proposed merger described below (the “Proposed Merger”) of the Terminating Fund into the Continuing Fund pursuant to 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):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (together with Ontario, the “Jurisdictions”).
Interpretation
Defined terms contained in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.
Representations
This Decision is based on the following facts represented by the Filer on behalf of the Funds:
1. The Filer:
(a) is a corporation amalgamated under the laws of Ontario;
(b) is an indirect wholly-owned subsidiary of Invesco Ltd., a global investment manager;
(c) has its head office in Toronto, Ontario;
(d) is registered as an investment fund manager in Ontario and is the manager of the Funds; and
(e) is not in default of applicable securities legislation in any jurisdiction.
The Funds
2. Each Fund:
(a) is an open-end mutual fund trust established under the laws of Ontario;
(b) is subject to and complies with NI 81-102, subject to any exemptions therefrom that may be available under applicable securities legislation or granted by securities regulatory authorities;
(c) has substantially similar valuation procedures and the net asset value of each series of each Fund is calculated on a daily basis on each day that The Toronto Stock Exchange is open for trading;
(d) is a reporting issuer under the securities laws of each of the provinces and territories of Canada;
(e) is qualified for distribution in all provinces and territories of Canada pursuant to the simplied prospectus and annual information form prepared in accordance with National Instrument 81-101- Mutual Fund Prospectus Disclosure (NI-81-101);; and
(f) is not in default of securities legislation in any province or territory of Canada.
The Proposed Merger
3. On May 25, 2017, the Filer issued a press release announcing the Proposed Merger, the proposed date (July 24, 2017) for the unitholders' meeting to vote on the Proposed Merger and the date of the Proposed Merger (close of business on or about July 28, 2017). The press release, a material change report, an amendment to the simplified prospectus, an amendment to the annual information form and revised fund facts of the Terminating Fund, in each case relating to the Proposed Merger, were filed via SEDAR on May 26, 2017.
4. The Filer will be seeking the approval of the Proposed Merger by unitholders of the Terminating Fund pursuant to subsection 5.1(f) of NI 81-102 at meetings of unitholders to be held on July 24, 2017 (the "Meeting"). Subject to unitholder approval, the Merger will take place on or about July 28, 2017 (the “Merger Date”). The Continuing Fund will continue as a publicly offered open-end mutual fund.
5. 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.
6. By way of order dated December 5, 2016, the Filer was granted relief (the “Notice-and-Access Relief”) from the requirement contained in paragraph 12.2(2)(a) of National Instrument 81-106 Investment Fund Continuous Disclosure to send a printed information circular to registered holders of securities of terminating funds whose proxies are solicited, and, subject to certain conditions, instead allows a Notice-and-Access Document (as defined in the Notice-and-Access Relief) to be sent to such securityholders.
7. Pursuant to the requirements of the Notice-and-Access Relief, a Notice-and-Access Document and applicable proxies in connection with the meeting of unitholders of the Terminating Fund, along with the applicable most recently filed fund facts documents of the Continuing Fund, were mailed to unitholders of the Terminating Fund in June 2017 and filed via SEDAR immediately prior to this mailing.
8. A Management Information Circular that contains, among other things, disclosure (i) of the management fees of the Continuing Fund, (ii) regarding the differences between the Funds, (iii) regarding the tax implication of the Proposed Merger, (iv) that the units of the Continuing Fund acquired by unitholders of the Terminating Fund will be subject to the same redemption charges to which their units of the Terminating Fund was subject prior to the Proposed Merger, and (v) that unitholders can obtain, at no cost, the simplified prospectus, annual information form, the most recent interim and annual financial statements and management report of fund performance of the Continuing Fund that have been made public by contacting the Filer or accessing the documents on the Filer’s website, will be sent at the Filer’s expense to any unitholders of the Terminating Fund who request a copy, and will be filed via SEDAR and be made available on the Filer’s website immediately prior to the mailing of the Notice-and-access Document.
9. Unitholders of the Terminating Fund will continue to have the right to redeem the units of the Terminating Fund for cash at any time up to the close of business on the Merger Date. Effective close of business on the Merger Date, the Terminating Fund 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 implementation of the Proposed Merger, all systematic investment programs and systematic withdrawal programs that had been established with respect to the Terminating Fund (except for such programs in respect of certain series of the Terminating Fund that are being terminated and are not merging into the Continuing Fund), will be re-established on a series-for-series basis in the Continuing Fund unless unitholders advise the Filer otherwise. Unitholders may change or cancel any systematic program at any time.
10. The Proposed Merger will be structured as follows:
(a) The Filer anticipates that there will be a period of approximately 4-5 business days between the Meeting and the Merger Date. If all necessary approvals are obtained, prior to the date of the Proposed Merger, the Terminating Fund will liquidate all of the assets in its portfolio that do not meet the investment objectives and investment strategies of the Continuing Fund. As a result, the Terminating Fund may hold the proceeds in cash, money market instruments or securities of affiliated money market funds. While it is expected that most of these changes will occur closer to the Merger Date than the date of the Meeting, the Terminating Fund may not be fully invested in accordance with its investment objectives for a brief period of time prior to the completion of the Proposed Merger.
(b) The Terminating Fund will satisfy or otherwise make provisions for any liabilities attributable to it out of the assets attributable to it prior to the Merger Date.
(c) The value of the Terminating Fund’s portfolio and other assets will be determined at the close of business on the Merger Date in accordance with the Terminating Fund’s declaration of trust.
(d) The Continuing Fund will acquire the investment portfolio and other assets of the Terminating Fund in exchange for securities of the Continuing Fund.
(e) The Continuing Fund will not assume the liabilities of the Terminating Fund, and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the date of the Proposed Merger.
(f) The units of the Continuing Fund received by each unitholder of the Terminating Fund will have the same aggregate net asset value as the securities of the Terminating Fund held by that securityholder on the Merger Date.
(g) The aggregate net asset value of all units of the Continuing Fund received by all unitholders of the Terminating Fund will equal the value of the portfolio and other assets attributable to the Terminating Fund, and the securities of the Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business on the Merger Date.
(h) Immediately thereafter, the units of the Continuing Fund received by the Terminating Fund will be distributed to securityholders of the Terminating Fund on a dollar‑for‑dollar and series-by-series basis in exchange for their securities in the Terminating Fund.
(i) The Terminating Fund will distribute a sufficient amount of its net income and net realized capital gains, if any, to ensure that it will not be subject to tax for its taxation year which is deemed, for tax purposes, to end on the date of the merger.
(j) The Terminating Fund will be wound-up as soon as reasonably possible following the Proposed Merger.
11. The Filer will pay for the costs of the Proposed Merger. The costs consist mainly of brokerage charges associated with trades that occur before and after the date of the Proposed Merger and legal, proxy solicitation, printing, mailing and regulatory fees.
12. The Filer has concluded that the Proposed Merger is not material to the Continuing Fund, and accordingly, there is no intention to convene a meeting of the unitholders of the Continuing Fund to approve the Proposed Merger pursuant to paragraph 5.1(1)(g) of NI 81-102.
13. Units of the Continuing Fund received by unitholders of the Terminating Fund as a result of the Proposed Merger will have the same sales charge option and, for securities purchased under a deferred sales charge option, the same remaining deferred sales charge schedule, as their units in the Terminating Fund.
Reasons for Approval Sought
The fundamental investment objective of the Terminating Fund is to generate high income and capital appreciation by investing primarily in debt securities of emerging market issuers denominated in local currencies. The fundamental investment objective of the Continuing Fund is to generate income and capital appreciation by investing primarily in investment-grade debt securities of governments, corporations and other issuers around the world.
The Continuing Fund has loss carryforwards for tax purposes that will be lost if the Proposed Merger is implemented on a tax-deferred basis. Consequently, the Proposed Merger will be effected on a taxable basis so that the Continuing Fund will preserve its unutilized loss carryforwards for use to shelter income and capital gains realized by the Continuing Fund in future years.
Securityholder approval of the Proposed Merger is required under section 5.1(1)(f) of NI 81-102 because the Proposed Merger does not satisfy all of the applicable conditions referenced in section 5.6(1) of NI 81-102; namely, the requirement that a reasonable person would consider the fundamental investment objectives of the Funds to be substantially similar, and the requirement that the Proposed Merger be a “qualifying exchange” within the meaning of section 132.2 of the Income Tax Act (Canada) (the “Tax Act”) or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act, as required under section 5.6(1)(b) of NI 81-102.
Similarly, approval of the principal regulator of the Proposed Merger is required under section 5.5(1)(b) and section 5.6 of NI 81-102 because the Proposed Merger does not meet the pre-approval criteria under section 5.6 of NI 81-102 noted above. 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.
Decision
The Principal Regulator is satisfied that the decision meets the test contained 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 provided that the unitholders of the Terminating Fund approve the Proposed Merger at the Meeting.
“Vera Nunes”
Vera Nunes,
Manager, Investment Funds & Structured Products Branch
Ontario Securities Commission