Evolve Funds Group Inc. and High Interest Savings Account Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement to obtain the approval of securityholders for fund reorganization and approval of fund reorganization under paragraph 5.5(1)(b) of NI 81-102 -- reorganization was undertaken in connection with external regulatory changes deemed to be in the best interests of securityholders -- required to send written notice at least 60 days before the effective date of the reorganization describing the reorganization and redemption rights -- tax impact to securityholders expected to be immaterial -- relief subject to conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Fund, ss. 5.1(1)(f) and 5.5(1)(b) and 19.1.
June 14, 2024
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 EVOLVE FUNDS GROUP INC. (the Filer) AND HIGH INTEREST SAVINGS ACCOUNT FUND (HISA)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of HISA, for a decision under the securities legislation of the Jurisdiction (the Legislation):
(a) exempting HISA from the requirement in subsection 5.1(1)(f) of National Instrument 81-102 Investment Funds (NI 81-102) to obtain the prior approval of its unitholders for the proposed reorganization of HISA (the Reorganization) which will result in HISA being split into two separate mutual fund trusts: (1) a newly created mutual fund trust (the New Mutual Fund) and (2) HISA which will be an exchange-traded mutual fund trust (the Existing ETF) (the Unitholder Approval Relief); and
(b) approving of the Reorganization pursuant to subsection 5.5(1)(b) of NI 81-102 (the Reorganization Approval, together with the Unitholder Approval Relief, the Requested Relief).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) is the principal regulator for this application (Principal Regulator); and
(b) the Filer has provided notice that section 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Ontario with its head office located in Toronto, Ontario.
2. The Filer is registered as (i) a portfolio manager and a commodity trading manager in Ontario and (ii) an investment fund manager under the securities legislation of each of Ontario, Quebec and Newfoundland and Labrador.
3. The Filer is not in default of applicable securities legislation in any of the Jurisdictions.
4. The Filer is the manager of HISA and will be the manager and trustee of the New Mutual Fund.
HISA
5. HISA is an investment fund established under the laws of the Province of Ontario.
6. HISA is a money market fund (within the definition set out in NI 81-102) which seeks to maximize monthly income while preserving capital and liquidity by investing primarily in high interest Canadian dollar deposit accounts.
7. HISA is comprised of a single class of the ETF units (the Existing ETF Units) and three classes of the mutual fund units (the Existing Mutual Fund Units) which are currently qualified for distribution in the Jurisdictions under a prospectus and fund facts or ETF facts document (as applicable) dated August 16, 2023.
8. HISA is a reporting issuer under the applicable securities legislation of each of the Jurisdictions.
9. The Existing ETF Units are currently listed and trading on Cboe Canada (Cboe) under the symbol "HISA" and will continue to be listed and trading on Cboe following the Reorganization.
10. HISA is subject to, among other laws and regulations, NI 81-102, National Instrument 81-106 Investment Fund Continuous Disclosure and National Instrument 81-107 Independent Review Committee for Investment Funds.
11. HISA is not in default of applicable securities legislation in any of the Jurisdictions.
The New Mutual Fund
12. The New Mutual Fund is expected to be established under the laws of Ontario.
13. The New Mutual Fund will be a money market fund (within the definition set out in NI 81-102) and organized as a newly formed mutual fund trust which will seek to maximize monthly income while preserving capital and liquidity by investing primarily in high interest Canadian dollar deposit accounts.
14. The New Mutual Fund will offer corresponding classes of mutual fund units which will have the same terms as the corresponding class of the Existing Mutual Fund Units currently offered by HISA.
15. The New Mutual Fund is expected to be a reporting issuer under the applicable securities legislation in each of the Jurisdictions and subject to NI 81-102.
The Reorganization
16. The Reorganization is being undertaken in response to certain changes to the liquidity treatment of high interest savings account exchange traded funds resulting from an October 31, 2023 announcement from the Office of the Superintendent of Financial Institutions and in an effort to improve the yield for holders of the Existing Mutual Fund Units.
17. The Filer has determined that the Reorganization is in the best interest of unitholders of HISA as the Filer expects that the Reorganization will result in unitholders of the New Mutual Fund Units earning a higher yield than if they remained investors in HISA and unitholders of the Existing Mutual Fund Units.
18. The Filer intends to merge the assets attributable to the Existing Mutual Fund Units into the New Mutual Fund with the result of the Reorganization being that holders of the Existing Mutual Fund Units will cease to be unitholders of HISA and will become unitholders of the New Mutual Fund.
19. The disposition of the Existing Mutual Fund Units in connection with the Reorganization will be a taxable disposition for purposes of the Tax Act; however, due to the structure of the Reorganization, no significant tax consequences to the holders of Existing Mutual Fund Units and New Mutual Fund Units is expected to result from the Reorganization.
20. HISA will continue following the Reorganization and holders of Existing ETF Units will remain unitholders of HISA (i.e., the Existing ETF) with no changes made with respect to the Existing ETF Units.
21. The Existing ETF will only offer ETF units following the Reorganization.
22. The Reorganization is expected to have no adverse impact on the holders of the Existing ETF Units as the holders of the Existing ETF Units will remain unitholders of the Existing ETF following the Reorganization.
23. HISA will issue a press release and holders of the Existing Mutual Fund Units will receive a written notice (the Notice) which will describe the Reorganization and their right to redeem the Existing Mutual Fund Units prior to the close of business on the effective date of the Reorganization (the Effective Date) if they wish to do so. Holders of the Existing Mutual Fund Units will also be reminded of their right to redeem the New Mutual Fund Units at anytime following the Effective Date.
24. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Filer will present the terms of the Reorganization to the independent review committee of HISA (the IRC) for its review. The Filer will only move forward with the Reorganization if the IRC determines that the Reorganization, if implemented, will achieve a fair and reasonable result for HISA.
25. The assets of HISA to be acquired by the New Mutual Fund: (i) may be acquired by the New Mutual Fund in compliance with NI 81-102; and (ii) are acceptable to the portfolio adviser of the New Mutual Fund and are consistent with the New Mutual Fund's investment objectives.
26. The costs of effecting the Reorganization (consisting primarily of legal and regulatory fees and printing and mailing costs) will be borne by the Filer.
27. The consideration offered to holders of the Existing Mutual Fund Units will have a value that is equal to the net asset value per Existing Mutual Fund Unit calculated on the Effective Date.
28. No sales charges will be payable by the unitholders of the Existing Mutual Fund Units in connection with the Reorganization.
29. The fundamental investment objectives of the New Mutual Fund will not be changed from those of HISA and the terms of each class of the New Mutual Fund Units will be the same as the terms of the corresponding class of the Existing Mutual Fund Units.
Steps to the Proposed Reorganization
30. The specific steps to implement the Reorganization are expected to be as follows:
(i) The Filer will amend the declaration of trust of HISA to allow the Filer to undertake the Reorganization without unitholder approval.
(ii) The Filer will issue a press release and mail the Notice to unitholders of Existing Mutual Fund Units not less than 60 days' prior to the Effective Date. This Notice shall describe the Reorganization, the amendments made to the declaration of trust of HISA, the terms of exemptions granted by the OSC with respect to the Reorganization, the New Mutual Fund, the tax consequences of the Reorganization and various ways in which unitholders can obtain a copy of the prospectus and Fund Facts document of HISA and the New Mutual Fund and remind unitholders of the Existing Mutual Fund Units of their right to redeem their Existing Mutual Fund Units at any time prior to the close of business on the Effective Date.
(iii) Existing Mutual Fund Units will be redeemed and exchanged for the New Mutal Fund Units of the corresponding class. The number of New Mutual Fund Units to be received will be determined by multiplying the number of the Existing Mutual Fund Units outstanding at the close of business on the Effective Date by an exchange ratio (which will be equal to the net asset value (NAV) per Existing Mutual Fund Unit as of the close of business on the Effective Date divided by the NAV per New Mutual Fund Unit as of the close of business on the Effective Date).
(iv) All of the assets of HISA attributable to the Existing Mutual Fund Units notionally allocated to HISA will become assets that are notionally allocated to the New Mutual Fund.
(v) All the assets of HISA attributable to the Existing ETF Units will continue to remain assets of HISA (i.e., the Existing ETF) and the holders of the Existing ETF Units will be the sole unitholders of the Existing ETF following the Reorganization.
Pre-Approval
Securityholder Pre-Approval Criteria
31. The Reorganization satisfies the pre-approval criteria set out in section 5.3(2) of NI 81-102 (the Securityholder Pre-Approval Criteria) other than:
(i) The Reorganization will be implemented on a taxable basis and not as a "qualifying exchange" within the meaning of the Income Tax Act (Canada) (the Tax Act) or otherwise as a tax-deferred transaction under the Tax Act as required by subparagraph 5.3(2)(a)(iii)(B);
(ii) HISA will not be wound-up following the Reorganization as required by subparagraph 5.3(2)(a)(iii)(C), as it will continue to operate in the ordinary course of business as an exchange-traded mutual fund; and
(iii) the Filer will send the Notice to the holders of the Existing Mutual Fund Units at least 60 days prior to the Effective Date as required by paragraph 5.3(2)(a)(v).
32. Except as noted above, the Reorganization will otherwise comply with the Securityholder Pre-Approval Criteria.
Securities Regulatory Authority Criteria
33. The Reorganization satisfies the pre-approval criteria set out in section 5.6 of NI 81-102 (the Regulatory Authority Pre-Approval Criteria) other than:
(i) the Reorganization will be implemented on a taxable basis and not as a "qualifying exchange" within the meaning of the Tax Act or otherwise as a tax-deferred transaction under the Tax Act and while the Filer reasonably believes that the Reorganization is in the best interests of HISA despite the tax treatment of the Reorganization, the Filer proposes to include the information required by subparagraph 5.6(1)(b)(ii)(B) in a written notice (and not a circular) as the Filer will not hold a securityholder meeting to approve the Reorganization so no circular will be mailed;
(ii) HISA will not be wound-up following the Reorganization as required by subparagraph 5.6(1)(c), as it will continue to operate in the ordinary course of business as an exchange-traded mutual fund;
(iii) the Reorganization will not be approved by the securityholders of HISA as required by subparagraph 5.6(1)(e)(i); and
(iv) the information required to be included in a circular as required by subparagraph 5.6(1)(f)(i) will be included in the Notice to unitholders of the Existing Mutual Fund Units.
34. Except as noted above, the Reorganization will otherwise comply with the Regulatory Authority Pre-Approval Criteria.
Requested Relief
35. The Filer has concluded that the Reorganization is not a material change to HISA, and, accordingly, there is no intention to convene a meeting of the holders of the Existing Mutual Fund Units to approve the Reorganization pursuant to paragraph 5.1(1)(f) of NI 81-102.
36. The tax implications of the Reorganization will be described in the Notice which HISA will send to the holders of the Existing Mutual Fund Units. This Notice will allow such securityholders to make an informed decision whether to retain their Existing Mutual Fund Units through the Reorganization.
37. The Notice to unitholders of the Existing Mutual Fund Units will also describe the Reorganization, the amendments made to the declaration of trust of HISA, the terms of exemptions granted by the OSC with respect to the Reorganization, the New Mutual Fund and various ways in which unitholders can obtain a copy of the prospectus and Fund Facts document of HISA and the New Mutual Fund and remind unitholders of the Existing Mutual Fund Units of their right to redeem their Existing Mutual Fund Units at any time prior to the close of business on the Effective Date.
38. The IRC will have determined that the Reorganization, if implemented, will achieve a fair and reasonable result for HISA.
39. Without this exemptive relief order, HISA would be required to obtain the approval of the holders of the Existing Mutual Fund Units prior to effecting the Reorganization, which could cause confusion, undue expense and potential delay; notwithstanding the benefits of the Reorganization.
40. The Filer believes that the Reorganization is in the best interests of the holders of the Existing ETF Units, the Existing Mutual Fund Units and the New Mutual Fund as the Reorganization would result in the holders of Existing Mutual Fund Units being unitholders of the Continued Mutual Fund which provides an opportunity for higher yield for such unitholders.
41. The Filer has determined that it will not be prejudicial to the public interest to grant the Requested Relief.
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 Requested Approval is granted provided that:
1. the Reorganization is approved by the IRC;
2. the Filer sends the Notice to the holders of Existing Mutual Fund Units at least 60 days before the Effective Date which will include information necessary for the securityholder to understand the Reorganization, including:
(a) a brief description of the Reorganization;
(b) a description of the New Mutual Fund;
(c) the IRC's determination with respect to the Reorganization;
(d) the tax consequences of the Reorganization;
(e) disclosure stating that holders of the Existing Mutual Fund Units will receive the corresponding class of units of the New Mutual Fund;
(f) a statement that securityholders may obtain, free of charge, the most recent annual and interim financial statements, the current prospectus, fund facts and the most recent management report of fund performance that have been made public by contacting the Filer or by accessing the website of the Filer or SEDAR+; and
(g) a statement that securityholder may obtain, free of charge, the prospectus and fund facts for the New Mutual Fund by contacting the Filer or by accessing the website of the Filer or SEDAR+.
Application File #: 2023/0607
SEDADR+ File #: 6059873