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Fédération des Caisses Desjardins du Québec et al. - MRRS Decision
Headnote
MRRS -- Approval of fund mergers -- modified simplified prospectus of Continuing Funds provided to unitholders of the Terminating Funds and financial statements of Continuing Funds not required to be sent to unitholders of the Terminating Funds provided information circular sent in connection with the unitholders meeting clearly discloses the various ways unitholders can access the financial statements -- unitholders of Desjardins Select Global Equity Fund (Continuing Fund to merge with Desjardins Fidelity Global Fund) approved the proposed change to it's investment objective.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, s. 5.5(1)(b).
December 5, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUÉBEC, NEW BRUNSWICK,NOVA SCOTIA,
PRINCE EDWARD ISLAND, NEWFOUNDLAND AND LABRADOR,
YUKON TERRITORY, NORTHWEST TERRITORIES
AND NUNAVUT TERRITORY
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
THE FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC
(the "Manager")
AND
DESJARDINS SELECT CANADIAN EQUITY FUND,
DESJARDINS CI CANADIAN INVESTMENT FUND,
DESJARDINS FIDELITY CANADIAN GROWTH COMPANY FUND,
DESJARDINS SELECT CANADIAN BALANCED FUND,
DESJARDINS SELECT AMERICAN EQUITY FUND,
DESJARDINS FIDELITY GLOBAL FUND AND
DESJARDINS GLOBAL SCIENCE AND TECHNOLOGY FUND
(the "Terminating Funds")
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 Manager and the Terminating Funds (the "Filers") for a decision under the securities legislation of the Jurisdictions (the "Legislation") for approval of the merger of the Terminating Fund into Desjardins Canadian Equity Value Fund, Desjardins Canadian Small Cap Equity Fund, Desjardins Canadian Balanced Fund, Desjardins American Equity Value Fund, Desjardins Select Global Equity Fund and Desjardins Global Equity Value Fund (the "Continuing Funds") (collectively, the "Funds") under paragraph 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102"). (the "Requested Relief").
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Autorité des marchés financiers 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 Filers:
1. The Manager is the manager of the Funds and is principally responsible for the management and administration of the Funds.
2. The Funds are open-ended mutual fund trusts governed by the laws of the Province of Québec.
3. Securities of the Funds are qualified for distribution in all of the provinces and territories of Canada under a simplified prospectus and annual information form dated January 17, 2007 (the "Prospectus").
4. Each of the Funds is a reporting issuer under the securities legislation of each of the provinces and territories of Canada. The Funds are not in default of any of the requirements of the securities legislation of any of the provinces and territories of Canada.
5. Unless an exemption has been obtained, each of the Terminating Funds and Continuing Funds follow the standard investment restrictions and practices contained within NI 81-102.
6. The net asset values of the Terminating Funds and the Continuing Funds are calculated on a daily basis on each day that the Toronto Stock Exchange is open for trading.
7. The Manager intends to merge the Terminating Funds into the Continuing Funds on or about January 18, 2008. The proposed mergers of the Terminating Funds and the Continuing Funds, as identify in the chart bellow, are referred to in this Decision as the "Transactions".
8. The Manager proposes to take the following steps to implement the Transactions:
a) each Terminating Fund will liquidate substantially all of its portfolio securities on or prior to the date of the Transactions and will thereafter transfer its net assets, comprised of cash, cash equivalents (inclusive of dividend and sales proceeds receivable), less assets sufficient to satisfy its liabilities, to the applicable Continuing Fund in exchange for securities of the Continuing Fund;
b) immediately thereafter, the securities of the Continuing Fund received by the Terminating Fund will be distributed to the unitholders of the Terminating Fund on a pro rata basis so that each unitholder will become a direct unitholder in the Continuing Fund;
c) the Terminating Fund will be terminated and wound up as soon as practicable thereafter and in any event not later than March 31, 2008.
9. Unitholders of a Terminating Fund will continue to have the right to redeem their securities of the applicable Terminating Fund for cash at any time up to the close of business on January 17, 2008 (being the business day immediately preceding the anticipated merger date).
10. A unitholder of a Terminating Fund will receive a number of securities of the applicable Continuing Fund having a net asset value equal to the value of the securities of the Terminating Fund held by that unitholder.
11. All expenses related to the Transactions, including all brokerage expenses incurred in respect of any required sale of portfolio assets of the Terminating Funds, will be borne by the Manager.
12. No sales charges will be payable in connection with the acquisition by the Continuing Funds of the assets of the Terminating Funds.
13. Following the Transaction, the Continuing Funds will continue as a publicly offered open-end mutual fund trust and the Terminating Funds will be wound up as soon as reasonably practicable and in any event not later than March 31, 2008.
14. A press release and a material change report was filed on behalf of the Terminating Funds with the securities commissions of all provinces and territories with respect to the Transaction on August 30, 2007 under SEDAR.
15. A notice of meeting, a management information circular (the "Circular") and a proxy in connection with meetings of unitholders was mailed to unitholders of the Terminating Fund and the Continuing Fund commencing on or about October 15, 2007 and was filed on SEDAR on October 24, 2007.
16. Unitholders of the Terminating Funds approved the Transaction at a meeting held on November 9, 2007. At the same meeting, unitholders of Desjardins Select Global Equity Fund approved a change to the investment objective of that Continuing Fund. The Transaction relating to Desjardins Fidelity Global Fund was contingent upon the unitholders of Desjardins Select Global Equity Fund approving the Manager's proposed change to that Fund's investment objectives.
17. Approval of the Transactions was required because the Transactions do not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:
a) the Transactions will not be structured as a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act;
b) the investment objective of the Terminating Fund Desjardins Global Science and Technology Fund and the investment objective of the Continuing Fund Desjardins Global Equity Value Fund may not be considered to be substantially similar; and
c) the meeting materials sent to unitholders of the Terminating Funds did not include the most recent simplified prospectus, annual and interim financial statements that have been made public for the Continuing Funds.
18. Unitholders of the Terminating Funds have been provided with information about the tax consequences of the Transactions in the Circular and they have considered this information prior to voting on the Transactions. It is anticipated that most of the Terminating Funds will be in loss positions meaning that most of the unitholders of the Terminating Funds will not be prejudiced and will not realize a capital gain as a result of the Transactions.
19. The fee structures of the Continuing Funds and the Terminating Funds are comparable.
20. The Circular which has been provided to unitholders of the Terminating Funds contained information regarding the Continuing Funds' investment objectives, investment advisers and investment strategies sufficient to consider the Transactions.
21. The Manager believes that the Transactions will benefit unitholders of the Terminating Funds in the following ways:
a) unitholders of the Terminating Funds will enjoy increased economies of scale and lower fund operating expenses (which are borne indirectly by unitholders) as part of a larger combined Continuing Funds;
b) to the extent that securities in the investment portfolio of a Terminating Fund are transferred to a Continuing Fund, there will be a savings in brokerage charges over a straight liquidation of those portfolio securities if the Terminating Fund was terminated;
c) the Transactions will eliminate the administrative and regulatory costs of operating the Terminating Funds as separate mutual funds; and
d) the Continuing Funds will have a portfolio of greater value allowing for increased portfolio diversification opportunities than the Terminating Funds.
22. The Circular sent to unitholders of the Terminating Funds prominently discloses that unitholders of the Terminating Funds can obtain the most recent interim and annual financial statements and the annual information form of the Continuing Fund at no cost from www.sedar.com, from the Manager's internet site, and by calling toll-free 1-866-666-1280.
23. The Circular sent to unitholders of the Terminating Funds include relevant extracts from Part A of the Prospectus and Part B of the Prospectus of the relevant Continuing Funds.
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 Requested Relief is hereby approved.
"Josée Deslauriers"
Director of Capital Market