Caldwell Investment Management Ltd. and Clearpoint Global Dividend Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval of investment fund merger -- approval required because merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 Investment Funds -- the terminating fund and continuing fund do not have substantially similar fundamental investment objectives -- terminating fund unitholders not mailed fund facts of continuing fund -- management information circular mailed to terminating fund unitholders did not include reference to fund facts of continuing fund being available at no cost -- mergers otherwise comply with pre-approval criteria, including qualifying exchange under the Income Tax Act (Canada), unitholder vote, IRC approval -- unitholders provided with timely and otherwise adequate disclosure regarding the merger.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(b) and 19.1.
October 25, 2019
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 CALDWELL INVESTMENT MANAGEMENT LTD. (the Filer) AND IN THE MATTER OF CLEARPOINT GLOBAL DIVIDEND FUND
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of Clearpoint Global Dividend Fund (the Terminating Fund) and Caldwell U.S. Dividend Advantage Fund (the Continuing Fund and together with the Terminating Fund, the Funds) for a decision under the securities legislation of the Jurisdiction (the Legislation) for approval of the proposed merger (the 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):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (the Jurisdictions).
Interpretation
Terms defined in MI 11-102, National Instrument 14-101 Definitions 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 and the Funds
1. The Filer is a corporation existing under the laws of Ontario with its registered head office in Toronto, Ontario.
2. The Filer is registered in the following categories in the jurisdictions as indicated below:
(a) Ontario: Portfolio Manager (PM) and Investment Fund Manager (IFM);
(b) Alberta: PM and IFM;
(c) British Columbia: PM and IFM;
(d) Quebec: PM and IFM;
(e) Newfoundland and Labrador: IFM;
(f) Manitoba: PM and IFM; and
(g) Saskatchewan: PM and IFM.
3. The Filer is the investment fund manager and portfolio manager of the Funds.
4. Each of the Funds is an open-end mutual fund trust established under the laws of Ontario by a declaration of trust pursuant to which the Filer is the trustee.
5. The Terminating Fund is a reporting issuer under the applicable securities legislation in the Jurisdictions. The Continuing Fund is a reporting issuer under the applicable securities legislation in the Jurisdictions and the territories of Canada. Each of the Funds is subject to NI 81-102.
6. Securities of the Terminating Fund are currently qualified for distribution in the Jurisdictions pursuant to the simplified prospectus, annual information form and fund facts documents dated February 28, 2019, as amended on June 24, 2019, July 18, 2019, August 28, 2019 and September 27, 2019 (the Terminating Fund Offering Documents).
7. Securities of the Continuing Fund are currently qualified for distribution in the Jurisdictions and the territories of Canada pursuant to the simplified prospectus, annual information form and fund facts documents dated July 19, 2019 (the Continuing Fund Offering Documents and together with the Terminating Fund Offering Documents, the Offering Documents).
8. The net asset value for each series of the Funds is calculated on a daily basis in accordance with the Funds' valuation policy and as described in the Offering Documents.
9. Neither the Filer nor the Funds are in default of securities legislation in the Jurisdictions.
Reason for Approval Sought
10. Regulatory approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. In particular:
(a) the investment objectives of the Continuing Fund are not, or may not be considered to be, "substantially similar" to the investment objectives of the Terminating Fund;
(b) due to inadvertence, the Meeting Materials (as defined below) did not include the most recently filed fund facts of the Continuing Fund, as required by 5.6(1)(f)(ii) of NI 81-102; and
(c) due to inadvertence, the Meeting Materials did not include the statement required by paragraph 5.6(1)(f)(iii)(A)(III) of NI 81-102 in respect of the Continuing Fund.
11. The investment objectives of the Terminating Fund and the Continuing Fund are as follows:
Terminating Fund
Continuing Fund
Seeks to provide Unitholders with long-term capital growth by investing primarily in equity securities of companies around the world.
Seeks to provide its unitholders with (a) monthly distributions and (b) the potential for capital appreciation and enhanced long-term risk adjusted returns by investing primarily in dividend-paying equity securities of U.S. domiciled issuers or issuers that derive a significant portion of their revenue or earnings from the U.S.
12. Except as described in this decision, the Merger complies with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
The Proposed Merger
13. In its capacity as manager of the Funds, the Filer proposes to merge the Terminating Fund into the Continuing Fund.
14. In accordance with National Instrument 81-106 Investment Fund Continuous Disclosure, a press release describing the proposed Merger has been issued and the press release, material change report, each dated September 26, 2019, amendment to the simplified prospectus of the Terminating Fund, amendment to the annual information form of the Terminating Fund and the amended and restated fund facts documents of the Terminating Fund, all dated September 27, 2019, and which give notice of the proposed Merger, have been filed via the System for Electronic Document Analysis and Retrieval (SEDAR).
15. The unitholders of the Terminating Fund approved the Merger at a meeting of the unitholders of the Terminating Fund held on October 18, 2019.
16. Subject to receipt of the Approval Sought, the Merger is expected to occur on or about October 25, 2019, or as soon as practicable thereafter (the Effective Date).
17. The proposed Merger does not require approval of existing unitholders of the Continuing Fund as the Filer has determined that the proposed Merger does not constitute a material change to the Continuing Fund.
18. As required by National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), the Independent Review Committee (IRC) has been appointed for the Funds. The Filer presented the terms of the Merger to the IRC for a recommendation. The IRC reviewed the proposed Merger and provided a positive recommendation for the Merger, having determined that the Merger, if implemented, would achieve a fair and reasonable result for each of the Funds and their respective unitholders. A summary of the IRC's recommendation has been included in the notice of special meeting sent to unitholders of the Terminating Fund as required by subsection 5.1(2) of NI 81-107.
19. A notice of meeting, a management information circular dated September 24, 2019 (the Circular) and a proxy in connection with the Merger (the Meeting Materials) were mailed to the unitholders of the Terminating Fund in accordance with applicable securities laws, both of which have been filed on SEDAR. The Circular contains a description of the proposed Merger, information about the Terminating Fund and the Continuing Fund, the IRC's recommendation regarding the Merger, and the income tax considerations for unitholders of the Terminating Fund. The Circular discloses that unitholders of the Terminating Fund may obtain at no cost, the following documents of the Continuing Fund by contacting the Filer or by accessing the website of the Filer or SEDAR: the most recent comparative financial statements, the management report of fund performance for its most recently completed financial year, the current simplified prospectus, and current annual information form. The Filer will also provide the fund facts in respect of the Continuing Fund upon request.
20. In light of the disclosure in the Circular, unitholders of the Terminating Fund would have had all the information necessary to determine whether the proposed Merger is appropriate for them.
21. Costs and expenses associated with the Merger will be borne by the Filer and will not be charged to the Funds. The costs of the Merger include legal, printing, mailing and regulatory fees, as well as proxy solicitation and brokerage costs.
22. Subject to receiving the necessary approvals, effective as of the close of business on the date before the Effective Date, the Terminating Fund will cease distribution of securities and any new purchases of securities will not be allowed. The Terminating Fund will remain closed to purchase-type transactions, except pursuant to the Terminating Fund's monthly investment program, until it is merged with the Continuing Fund on the Effective Date. All monthly investment programs shall remain unaffected until the business day immediately before the Effective Date.
23. Unitholders in the Terminating Fund will continue to have the right to redeem their securities up to the close of business on the last business day before the effective date of the Merger.
24. Following the Merger, all optional services (such as monthly investment programs) will continue to be available to investors. Unitholders of the Terminating Fund will be automatically enrolled in comparable plans with respect to their corresponding securities of the Continuing Fund unless they advise otherwise.
25. Unitholders may change or cancel any monthly investment programs at any time and unitholders of the Terminating Fund who wish to establish one or more monthly investment programs in respect of their holdings in the Continuing Fund may do so following the Merger.
26. Unitholders of the Terminating Fund who elected to receive distributions in cash from the Terminating Fund before the Merger will receive distributions in cash from the Continuing Fund after the Merger.
27. No sales charges will be payable by unitholders of the Funds in connection with the Merger.
28. The Merger will be completed as a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act (Canada) (the Tax Act).
29. The Terminating Fund and the Continuing Fund are, and are expected to continue to be at all material times, mutual fund trusts under the Tax Act and, accordingly, units of both Funds are "qualified investments" under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax free savings accounts.
Proposed Merger Steps
30. Any investment held by the Terminating Fund that is not consistent with the investment objective of the Continuing Fund or acceptable to the portfolio manager of the Continuing Fund will be sold prior to the Effective Date. As a result, the Terminating Fund may temporarily hold cash and may not be fully invested in accordance with its investment objectives for a brief period of time prior to the Merger. The value of any investment sold prior to the Effective Date will depend on prevailing market conditions.
31. Under the Merger, the Terminating Fund will transfer all or substantially all of its net assets to the Continuing Fund in consideration for the issuance by the Continuing Fund to the Terminating Fund of a number of Series A units and Series F units of the Continuing Fund determined based on an exchange ratio established as of the close of trading on the business day immediately preceding the effective date of the Merger (the Exchange Ratio).
32. The Exchange Ratio will be calculated based on the relative net asset values of the Series A Units or Series F Units of the Terminating Fund and the Series A units or Series F units of the Continuing Fund.
33. Immediately following the transfer of assets of the Terminating Fund to the Continuing Fund and the issuance of the Series A units and Series F units of the Continuing Fund to the Terminating Fund, all of the Units of the Terminating Fund will be automatically redeemed. Each unitholder will receive such number of Series A units and/or Series F units, as applicable, of the Continuing Fund as is equal to the number of Series A Units and/or Series F Units, as applicable, held by such unitholder as of the close of trading on the business day immediately preceding the effective date of the Merger multiplied by the Exchange Ratio of such units.
34. Units of the Terminating Fund will continue to be offered and redeemed on a daily basis up to the business day immediately prior to the effective date of the Merger.
35. The cash and any other assets of the Terminating Fund acquired by the Continuing Fund in connection with the Merger will be acquired in compliance with NI 81-102.
36. As soon as reasonably possible following the Merger, the Terminating Fund will be wound up and the Continuing Fund will continue as a mutual fund existing under the laws of Ontario.
Benefits of the Merger
37. The Filer believes that the Merger is in the best interests of the Terminating Fund and the Continuing Fund and their unitholders and will be beneficial to unitholders of the Terminating Fund and the Continuing Fund for the following reasons:
(a) as part of a broader reorganization, the Manager has lowered the management fees charged on the Continuing Fund to 1.75% and 0.75% per annum of net asset value for the Series A and Series F units, respectively, which represents a reduction of 0.25% per annum relative to the 2.0% and 1.0% per annum of net asset value, respectively charged on the Series A and Series F units of the Terminating Fund;
(b) merging the Terminating Fund into the Continuing Fund will provide unitholders with the opportunity to invest in a single fund that will have a larger market capitalization, which is expected to reduce fund administration and regulatory costs on a per unit basis for unitholders;
(c) the Continuing Fund will be significantly larger than the Terminating Fund, offering the potential for increased portfolio diversification; and
(d) the Merger is expected to be implemented on a tax deferred basis to unitholders, and accordingly, the Merger as well as issuance of Series A units and Series F units of the Continuing Fund should not result in a taxable event to unitholders.
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 is that the Approval Sought is granted.