CI Canadian Growth Portfolio et al. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- NI 81-102 Mutual Funds, -- approval of fund mergers -- mergers do not meet the criteria for pre-approval outlined in s.5.6 of NI 81-102 -- securityholders of terminating funds have received timely and adequate disclosure regarding the mergers.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1).
July 28, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, NEWFOUNDLAND AND LABRADOR,
PRINCE EDWARD ISLAND,
NORTHWEST TERRITORIES, NUNAVUT and YUKON
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
CI CANADIAN GROWTH PORTFOLIO
CI CANADIAN MAXIMUM GROWTH PORTFOLIO
CI EXPLORER FUND
CI EXPLORER CORPORATE CLASS
(the "Terminating Funds")
AND
CI INVESTMENTS INC.
(the "Filer")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer, on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdictions (the "Legislation") granting approval for each Terminating Fund to merge into its respective continuing fund, as contemplated by section 5.5(1)(b) of National Instrument 81-102 ("NI 81-102") (the "Approval").
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions 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:
1. The Filer is the manager of each of the mutual funds (individually, a "Fund" and, collectively, the "Funds") set out in paragraph 2 hereof.
2. The Filer intends to merge the Funds identified below under "Terminating Fund" (individually, a "Terminating Fund" and, collectively, the "Terminating Funds") into the respective Funds (individually, a "Continuing Fund" and, collectively, the "Continuing Funds") identified opposite their names below:
(individually a "Merger" and, collectively, the "Mergers").
3. Each Fund is a mutual fund that is subject to the requirements of NI 81-102.
4. Each Fund is a reporting issuer under the Legislation and is not on the list of defaulting reporting issuers maintained under the Legislation. Each Fund currently distributes its securities in all the provinces and territories of Canada pursuant to a simplified prospectus and annual information form dated June 20, 2005, as amended from time to time, (collectively, the "Prospectus") previously filed as SEDAR project no. 784613. On June 22, 2006, a decision was issued that extended the lapse date of the Prospectus until July 31, 2006.
5. The proposed Mergers were described in a press release, a material change report and an amendment to the Prospectus.
6. The Mergers will be beneficial to securityholders of each Fund for the following reasons:
(a) as a result of the increased investment opportunities created by the elimination of the foreign property restrictions, each Terminating Fund and its Continuing Fund are now largely duplicative of one another;
(b) following the Mergers, each Continuing Fund will have more assets allowing for increased portfolio diversification opportunities and a smaller proportion of assets set aside to fund redemptions;
(c) in the case of CI Explorer Fund and CI Explorer Corporate Class, there will be a savings in brokerage charges through a Merger rather than liquidating the portfolio of securities of that Terminating Fund; and
(d) each Continuing Fund will benefit from its larger profile in the marketplace.
7. Due to the different structures utilized by the Funds and their current tax circumstances, the procedures for implementing the Mergers will vary. However, the result of each Merger will be that investors in each Terminating Fund will cease to be securityholders in that Terminating Fund and will become securityholders in its Continuing Fund.
8. The portfolio assets of each Terminating Fund to be acquired by the applicable Continuing Fund will be acceptable to the portfolio adviser of the Continuing Fund and consistent with the Continuing Fund's investment objectives.
9. No sales charges will be payable in connection with the acquisition by the Continuing Funds of the investment portfolios of the Terminating Funds.
10. Securityholders of the Terminating Funds will continue to have the right to redeem their securities of the Terminating Funds at any time up to the close of business on the effective date of the Mergers.
11. Each Terminating Fund will be wound-up as soon as reasonably possible following its Merger.
12. In the opinion of the Filer, a reasonable person would consider each Terminating Fund and its Continuing Fund to have substantially similar valuation procedures and, except as noted below, substantially similar fundamental investment objectives and fee structures. In the opinion of the Filer, none of the Mergers will constitute a material change for the Continuing Funds.
13. Investors in the Terminating Funds will be asked to approve the Mergers at special meetings of securityholders to be held on July 27, 2006 (the "Meetings"). In connection with the Meetings, the Filer has sent to the securityholders of each Terminating Fund a management information circular, a related form of proxy, and the simplified prospectus (as amended) of its Continuing Fund (collectively, the "Meeting Materials").
14. If securityholders approve the Mergers, it is proposed that each Merger will occur after the close of business on or about July 31, 2006. The Filer may, in its discretion, postpone implementing any Merger until a later date (which shall be not later than December 31, 2006) and may elect to not proceed with any Merger.
15. The cost of effecting the Mergers (consisting primarily of proxy solicitation, printing, mailing, legal and regulatory fees) will be borne by the Filer.
16. The Filer believes that each Merger may not satisfy all the criteria for pre-approved reorganizations and transfers set forth in section 5.6 of NI 81-102 for the following reasons:
(a) the Merger involving CI Explorer Fund will not be implemented as either a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (Canada) or a tax-deferred transaction under section 85(1), 85.1(1), 86(1) or 87(1) of that Act;
(b) a reasonable person may not consider that the investment objectives of CI Explorer Fund and CI Explorer Corporate Class as Terminating Funds are substantially similar to the investment objectives of their respective Continuing Funds;
(c) a reasonable person may not consider that the fee structures of CI Canadian Growth Portfolio and CI Canadian Maximum Growth Portfolio as Terminating Funds are substantially similar to the fee structures of their respective Continuing Funds; and
(d) the most recent annual and interim financial statements of the Continuing Funds will not be sent to securityholders of the Terminating Funds.
17. The tax implications of the Merger involving CI Explorer Fund as well as the foregoing differences between the Terminating Funds and the Continuing Funds are described in the Meeting Materials so that the securityholders of the Terminating Funds may consider this information before voting on these Mergers.
Decision
Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met. The decision of the Decision Makers under the Legislation is that the Approval is granted provided that:
(i) the notice of meeting sent to securityholders with respect to the Mergers prominently discloses that securityholders can obtain the most recent annual and interim financial statements of the applicable Continuing Fund at no cost by contacting the Filer via its toll-free number, fax number or e-mail address or by downloading the financial statements from the internet at www.sedar.com or the Filer's website at www.ci.com; and
(ii) if a securityholder requests the financial statements of the Continuing Funds, the Filer will make its best efforts to provide the securityholder with the financial statements before the Meetings to approve the Mergers.