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O’Leary Funds Management L.P. et al.
Headnote
Policy Statement 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of change of manager of investment funds, and investment fund mergers -- merger approval required because merger does not meet the criteria for per-approval -- continuing fund has different investment objectives than terminating fund -- fee structure not substantially similar -- merger not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- manager of continuing fund is not an affiliate of the manager of the terminating fund -- securityholders provided with timely and adequate disclosure regarding the change of manager and the mergers -- change of manager and mergers is not detrimental to securityholders or contrary to the public interest.
Applicable Legislative Provisions
Regulation 81-102 respecting Investment Funds, ss. 5.5(1)(a), 5.5(1)(b), 5.6, 5.7, 19.1.
[Translation]
February 12, 2016
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF O'LEARY FUNDS MANAGEMENT L.P. (O'Leary or the Filer) AND IN THE MATTER OF O'LEARY CANADIAN BALANCED INCOME FUND, O'LEARY CANADIAN BOND YIELD FUND, O'LEARY CANADIAN DIVIDEND FUND, O'LEARY CANADIAN HIGH INCOME FUND, O'LEARY CONSERVATIVE INCOME FUND, O'LEARY EMERGING MARKETS INCOME FUND, O'LEARY FLOATING RATE INCOME FUND, O'LEARY GLOBAL BOND YIELD ADVANTAGED FUND, O'LEARY GLOBAL BOND YIELD FUND, O'LEARY GLOBAL DIVIDEND FUND, O'LEARY GLOBAL INFRASTRUCTURE INCOME FUND, O'LEARY GLOBAL GROWTH & INCOME FUND, O'LEARY TACTICAL INCOME FUND, O'LEARY U.S. STRATEGIC YIELD FUND (collectively, the O'Leary Mutual Funds), O'LEARY FLOATING RATE PORTFOLIO TRUST (REFERENCE FUND), O'LEARY U.S. PORTFOLIO TRUST (REFERENCE FUND) (collectively, the Reference Funds), CONVERTIBLE DEBENTURES INCOME FUND, FLOATING RATE INCOME FUND, O'LEARY CANADIAN DIVERSIFIED INCOME FUND, O'LEARY U.S. STRATEGIC YIELD ADVANTAGED FUND (collectively with the Reference Funds, the O'Leary Closed-End Funds) (the Mutual Funds and the Closed-End Funds are collectively referred to as the O'Leary Funds)
DECISION
Background
The securities regulatory authority or regulators in each of the Jurisdictions (the Decision Maker) has received an application from the Filer, on behalf of the O'Leary Funds, for a decision under the securities legislation of the Jurisdictions (the Legislation) approving (i) the change of manager of the O'Leary Funds from O'Leary to Canoe (as defined herein) (the Change of Manager) pursuant to paragraph 5.5(1)(a) of Regulation 81-102 respecting Investment Funds (c. V-1.1, r. 39) (Regulation 81-102) and (ii) the mergers of certain of the O'Leary Funds into certain mutual funds managed or to be managed by Canoe (the Mergers) pursuant to paragraph 5.5(1)(b) of Regulation 81-102 (collectively, the Approvals Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) The Autorité des marchés financiers is the principal regulator for this application;
(b) the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System (c. V-1.1, r. 1) (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in Regulation 14-101 respecting Definitions (c. V-1.1, r. 3), Regulation 11-102 and Regulation 81-102 have the same meaning if used in this decision, unless otherwise defined.
"Asset Purchase Agreement" means the agreement entered into by O'Leary and Canoe as of October 14, 2015 with respect to the Proposed Transaction.
"Canoe" means Canoe Financial LP.
"Canoe Continuing Funds" means each of the Canoe Enhanced Income Fund, Canoe North American Monthly Income Class, Canoe Global Income Fund, Canoe Strategic High Yield Fund, Canoe Canadian Monthly Income Class, Canoe Global Equity Income Class, Canoe Equity Income Class and Canoe Canadian Asset Allocation Class.
"Canoe Funds" means certain mutual funds and non-redeemable investment funds managed by Canoe that are formed as trusts established under the laws of Alberta, as a corporation established under the laws of Alberta, and as classes of Canoe 'GO CANADA!' Fund Corp. (Fund Corp.), a corporation established under the laws of Alberta.
"Canoe IRC" means the independent review committee of certain of the Canoe Funds within the meaning of Regulation 81-107.
"Circular" means the notice of meeting, proxies and information circular within the meaning of Regulation 81-106 prepared in connection with the Proposed Transaction.
"Closing" means the closing of the Proposed Transaction.
"Closing Date" means on or about February 16, 2016.
"Continuing Funds" means the Canoe Continuing Funds and O'Leary Floating Rate Income Fund (to be renamed Canoe Floating Rate Income Fund).
"Continuing Trust Fund" means the Continuing Funds that are formed as trusts.
"Corporate Class Funds" is defined at paragraph 64(e) hereof.
"Extraordinary Resolution Funds" means O'Leary Canadian High Income Fund, O'Leary Emerging Markets Income Fund, O'Leary Global Bond Yield Advantaged Fund, O'Leary Global Growth & Income Fund, Convertible Debentures Income Fund, Floating Rate Income Fund and O'Leary Canadian Diversified Income Fund.
"O'Leary IRC" means O'Leary Funds' independent review committee within the meaning of Regulation 81-107.
"O'Leary Continuing Funds" means O'Leary Canadian Bond Yield Fund (to be renamed Canoe Canadian Corporate Bond Fund), O'Leary Canadian Dividend Fund (to be renamed Canoe Canadian Dividend Fund), O'Leary Floating Rate Income Fund (to be renamed Canoe Floating Rate Income Fund), O'Leary Global Infrastructure Income Fund (to be renamed Canoe Global Balanced Fund) and the Reference Funds.
"MERs" is defined at paragraph 11 hereof.
"O'Leary Merging Funds" is defined at paragraph 30 hereof.
"Proposed Transaction" is defined at paragraph 26 hereof.
"Qualifying Exchange" has the meaning ascribed thereto in section 132.2 of the ITA.
"Regulation 41-101" means Regulation 41-101 respecting General Prospectus Requirements (c. V-1.1, r.14).
"Regulation 81-101" means Regulation 81-101 respecting Mutual Fund Prospectus Disclosure (c. V-1.1, r.38).
"Regulation 81-106" means Regulation 81-106 respecting Investment Fund Continuous Disclosure (c. V-1.1, r. 42).
"Regulation 81-107" means Regulation 81-107 respecting Independent Review Committee for Investment Funds (c. V-1.1, r. 43).
"Special Meetings" means the special meetings held on January 15, 2016 and the adjourned special meetings held on January 25, 2016 in connection with the Proposed Transaction.
"Stanton" means Stanton Asset Management Inc.
"Sub-Advisory Agreement" is defined at paragraph 28 hereof.
"Tax-Deferred Mergers" is defined at paragraph 44 hereof.
"Taxable Mergers" is defined at paragraph 45 hereof.
"TERs" is defined at paragraph 11 hereof.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is the investment fund manager and the trustee of the O'Leary Funds.
2. The Filer is a limited partnership formed under the laws of Ontario.
3. The Filer's head office is located in Montreal, Quebec.
4. The Filer is registered as an investment fund manager under the securities legislation of Québec, Ontario and Newfoundland and Labrador.
5. The Filer in not in default of securities legislation in any province of Canada.
The O'Leary Funds
6. Each of the O'Leary Mutual Funds is a mutual fund formed as a trust.
7. Each of the O'Leary Closed-End Funds is a non-redeemable investment fund formed as a trust.
8. The O'Leary Funds, other than the Reference Funds, are reporting issuers under the securities legislation of each province of Canada and each Reference Fund is a reporting issuer under the securities legislation of Quebec.
9. The securities of the O'Leary Mutual Funds are qualified for distribution by simplified prospectus governed by Regulation 81-101 and are currently offered under a simplified prospectus and annual information form each dated June 23, 2015, as amended by amendments to each dated November 27, 2015.
10. The securities of the O'Leary Closed-End Funds (other than the Reference Funds) were distributed in each of the provinces of Canada under a long form prospectus governed by Regulation 41-101.
11. The O'Leary Funds are not in default of securities legislation in any province of Canada.
Notwithstanding the foregoing, the Filer announced on January 11, 2016 by press release that it was refiling the interim management report of fund performance of Floating Rate Income Fund and O'Leary U.S. Strategic Yield Advantaged Fund for the six-month period ended June 30, 2015 (the MRFPs) to restate the management expense ratios (MERs) as well as restate the trading expense ratios (TERs) of each of these two funds since their respective inception dates to take into account the fees and expenses of the relevant reference fund. Given that the two funds have been in existence for less than 5 years, the refiled MRFPs contain all the relevant MER and TER information for the two funds. The Filer has paid for all the costs associated with the MER corrections.
12. Stanton is the portfolio manager of the O'Leary Funds.
13. CIBC Mellon is the custodian of the O'Leary Funds.
Canoe Financial LP
14. Canoe is the investment fund manager of the Canoe Funds.
15. Canoe is a limited partnership formed under the laws of Alberta.
16. Canoe's head office is in Calgary, Alberta.
17. Canoe is registered as an investment fund manager under the securities legislation of Alberta, Newfoundland and Labrador, Ontario and Québec, as a portfolio manager under the securities legislation of Alberta and Ontario and as exempt market dealer under the securities legislation of each of the jurisdictions of Canada.
18. Canoe is the trustee of the Canoe Funds that are mutual funds and formed as trusts.
19. CIBC Mellon is the custodian of the Canoe Funds that are mutual funds.
20. Canoe is not in default of securities legislation in any jurisdiction of Canada.
Canoe Continuing Funds
21. Each of the Canoe Continuing Funds is a mutual fund governed by a master declaration of trust or a mutual fund structured as a share class of the Fund Corp. as the case may be.
22. The Canoe Continuing Funds are reporting issuers under the securities legislation of each of the jurisdictions of Canada.
23. The securities of the Canoe Continuing Funds are qualified for distribution by simplified prospectus governed by Regulation 81-101 and are currently offered under a simplified prospectus and annual information form each dated July 27, 2015, as amended by amendments to each dated October 30, 2015, December 4, 2015 and January 5, 2016.
24. The Canoe Funds are qualified investments for registered tax plans, as such term is defined under the ITA.
25. The Canoe Funds are not in default of applicable securities legislation in any jurisdictions of Canada.
The Proposed Transaction
26. Pursuant to the Asset Purchase Agreement, Canoe has agreed to purchase from O'Leary the rights to manage the O'Leary Funds, along with certain related assets in consideration for a payment in cash and, subject to the level of assets under management of the O'Leary Funds 12 months after the execution of the Asset Purchase Agreement, the issuance of an equity interest in Canoe, which is expected to represent less than 10% of the aggregate equity interests in Canoe. Canoe intends to, amongst other things:
(a) change the investment fund manager, the trustee and the portfolio manager of the O'Leary Funds, change the names of those O'Leary Funds that contain "O'Leary" in their names and merge the O'Leary Merging Funds into the Continuing Funds;
(b) terminate or wind-up O'Leary Floating Rate Portfolio Trust into Floating Rate Income Fund (to be merged, on or about the end of July 2016, into O'Leary Floating Rate Income Fund (name to be changed to Canoe Floating Rate Income Fund)) and terminate or wind-up O'Leary U.S. Portfolio Trust into O'Leary U.S. Strategic Yield (to be merged, on or about the end of May 2016, into Canoe North American Monthly Income Class);
(c) change the investment objectives and strategies of certain O'Leary Funds, have certain O'Leary Funds adopt the form of master declaration of trust used by the Canoe Funds and have certain O'Leary Funds adopt the fixed administration fee expense structure used by the Canoe Funds; and
(d) retain Stanton, the current portfolio manager of the O'Leary Funds, to act as sub-advisor in respect of certain Continuing Funds and for Mr. Kevin O'Leary, Chairman and a director of the general partner of O'Leary, to enter into an 18-month part-time consulting agreement with Canoe pursuant to which he will act as Vice Chairman of Canoe in order to provide marketing assistance to Canoe during the transition following Closing.
(the Proposed Transaction).
27. As a result, effective as at the Closing Date, and subject to receipt of all necessary regulatory and unitholder approvals and the satisfaction of all other required conditions precedent set out in the Asset Purchase Agreement, including approval of certain Mergers, the Change of Manager will occur.
28. Also effective on Closing, Stanton will become sub-advisor of the following O'Leary Funds in accordance with the terms of a sub-advisory agreement between Canoe and Stanton (the Sub-Advisory Agreement):
• Canoe Floating Rate Income Fund (formerly O'Leary Floating Rate Income Fund);
• Floating Rate Income Fund (until such time as it is merged into Canoe Floating Rate Income Fund, formerly O'Leary Floating Rate Income Fund);
• O'Leary Floating Rate Portfolio Trust (until such time as the forward agreement is terminated and the assets are transferred into Canoe Floating Rate Income Fund, formerly O'Leary Floating Rate Income Fund);
• Canoe Canadian Corporate Bond Fund (formerly O'Leary Canadian Bond Yield Fund).
29. A press release in connection with the Proposed Transaction was issued and disseminated on October 15, 2015 and a related material change report was filed on the same day, and an additional press release and material change report concerning the Proposed Transaction were issued and filed on October 26, 2015. Amendments to the simplified prospectus, annual information form and fund facts documents of the O'Leary Mutual Funds were filed on SEDAR in connection with the Proposed Transaction on October 26, 2015.
30. After the Closing Date, the fourteen O'Leary Funds set forth below (the O'Leary Merging Funds) will be merged into corresponding Continuing Funds, as follows:
31. The O'Leary Continuing Funds, other than the Reference Funds, will continue to exist with certain changes following Closing. The Reference Funds are expected to be terminated or wound-up prior to the Merger of the corresponding O'Leary Merging Fund to which each relates.
32. Those O'Leary Funds that contain the name "O'Leary" in their name will undergo a name change at the time of Closing and continue under the Canoe banner.
33. In accordance with the provisions of Regulation 81-107, O'Leary referred the Proposed Transaction to the O'Leary IRC for its review. On November 18, 2015, the O'Leary IRC advised O'Leary that, after reasonable inquiry, the Proposed Transaction achieves a fair and reasonable result for the O'Leary Funds. Canoe also referred the Proposed Transaction, including the Mergers, to the Canoe IRC for its review. On November 5, 2015, the Canoe IRC advised Canoe that, after reasonable inquiry, the Mergers achieve a fair and reasonable result for each of the relevant Canoe Funds.
34. The Circular was mailed to unitholders of the O'Leary Funds on December 18, 2015 and filed on SEDAR in accordance with applicable securities legislation. The Circular contained:
(a) sufficient information regarding the business, management and operations of Canoe, including details of the funds it manages and its officers and board of directors;
(b) all information necessary to allow unitholders to make an informed decision about the Change of Manager and to vote on the Change of Manager;
(c) all information necessary to allow unitholders to make an informed decision about the Mergers and to vote on each Merger; and
(d) all information required in connection with the Change of Manager and the Mergers as specified by section 5.4 of Regulation 81-102.
All other information and documents necessary to comply with the applicable proxy solicitation requirements of securities legislation for the Special Meetings have been mailed to unitholders of the O'Leary Funds. The most recently filed fund facts of the relevant Continuing Funds, as applicable, were also included with the Circular.
35. At Special Meetings held on January 15, 2016, unitholders of each O'Leary Fund were asked to vote on the Change of Manager and unitholders of certain O'Leary Funds were also asked to vote on certain other proposals relating to a change of trustee, a change of investment objectives, a change to a fixed administration fee and the Mergers.
36. Unitholders of each O'Leary Fund approved each proposal at the Special Meetings held on January 15, 2016, other than the Change of Manager proposal for the Extraordinary Resolution Funds.
37. As the Extraordinary Resolution Funds did not obtain quorum at the January 15, 2016 meeting, the Special Meetings in respect of the Change of Manager proposal for these funds were adjourned to January 25, 2016. Unitholders of each Extraordinary Resolution Fund approved the Change of Manager proposal at these adjourned Special Meetings.
Details of the Mergers
38. The specific steps to implement the Mergers are described below. The result of the Mergers will be that investors in the O'Leary Merging Funds will cease to be unitholders in the O'Leary Merging Funds and will become securityholders in the Continuing Funds.
39. Unitholders of the O'Leary Merging Funds will receive securities of a similar series of a Continuing Fund as they currently own in the corresponding O'Leary Merging Fund.
40. The management fee of each relevant series of each Continuing Fund is the same as, or lower than, the management fee of the corresponding series of its corresponding O'Leary Merging Fund, other than the corresponding series of each O'Leary Closed-End Fund, where it is the same as, or lower than, the effective combined management fee and trailing commission (and management fee of the Reference Fund, if applicable) of the O'Leary Closed-End Fund.
41. The Canoe Continuing Funds have all adopted a fixed administration fee structure while the O'Leary Merging Funds have a floating expense structure. Unitholders of five O'Leary Mutual Funds approved, at the Special Meetings, a proposal to adopt a fixed administration fee structure. The Circular clearly delineates the differences in the management and administration fees and expense structures between the O'Leary Merging Funds and the Continuing Funds.
42. The investment objectives of each O'Leary Merging Fund are not substantially similar to the investment objectives of its corresponding Continuing Fund. The Circular clearly delineates the differences in investment objectives, investment strategies and other material differences between each O'Leary Merging Fund and the relevant Continuing Fund into which it will be merged.
43. No sales charges will be payable by unitholders of the O'Leary Merging Funds in connection with the Mergers.
44. Five of the Mergers will be effected as a Qualifying Exchange (the Tax-Deferred Mergers).
45. The other nine Mergers, involving a merger into a Continuing Fund that is a class of Fund Corp., will be effected on a taxable basis (the Taxable Mergers), as follows:
46. The Circular provided a summary of the anticipated tax implications to securityholders of the O'Leary Merging Funds and the Continuing Funds as a result of the Mergers.
47. The costs and expenses associated with the Mergers (consisting primarily of proxy solicitation, printing, mailing, legal and regulatory fees), including the costs of the Meetings but not including certain fees and expenses with respect to the IRC, will be borne by O'Leary or Canoe and will not be charged to the O'Leary Merging Funds.
48. Unitholders of each O'Leary Merging Fund which is an O'Leary Mutual Fund will continue to have the right to redeem their units for cash or switch into units of another O'Leary Mutual Fund at any time up to the close of business on the business day immediately before the effective date of the applicable Merger. Securities so redeemed will be redeemed at a price equal to their series net asset value per security on the redemption date. Unitholders of each O'Leary Merging Fund which is an O'Leary Closed-End Fund will continue to have the right to redeem units of the O'Leary Closed-End Fund in accordance with the provisions and in respect of the annual redemption option applicable to such fund prior to the effective date of the applicable Merger including the ability to redeem at 100% of the net asset value per unit (less any costs and expenses incurred by the O'Leary Closed-End Fund in funding the redemption) prior to the effective date.
49. Following the Mergers, all pre-authorized purchase plans that had been established with respect to the O'Leary Merging Funds will be re-established on a class or series-for-series basis in the applicable Continuing Funds unless a securityholder advises Canoe otherwise. Securityholders may change or cancel any pre-authorized purchase plan at any time.
50. The Mergers will not constitute a material change for any of the Continuing Funds.
51. The O'Leary Merging Funds have complied with Part 11 of Regulation 81-106 in connection with the making of the decision by the board of directors of the general partner of O'Leary to proceed with the Proposed Transaction, including the Mergers.
52. O'Leary is not entitled to rely upon the approval of the O'Leary IRC in lieu of unitholder approval for the Mergers due to the fact that one or more conditions of section 5.6 of Regulation 81-102 will not be met, as required by paragraph 5.3(2)(c) of Regulation 81-102, as described below:
O'Leary Merging Funds
Continuing Funds
Reason why pre-approval is not available
O'Leary Mutual Funds
O'Leary Canadian Balanced Income Fund
Canoe Canadian Monthly Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
O'Leary Canadian High Income Fund
Canoe Equity Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar, however they will be substantially similar if the investment objectives and fee structure changes are approved by unitholders
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
O'Leary Conservative Income Fund
Canoe Enhanced Income Fund
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
O'Leary Emerging Markets Income Fund
Canoe Global Equity Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
O'Leary Global Bond Yield Advantaged Fund
Canoe Global Income Fund
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
O'Leary Global Bond Yield Fund
Canoe Strategic High Yield Fund
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
O'Leary Global Dividend Fund
Canoe Global Equity Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
O'Leary Global Growth & Income Fund
Canoe North American Monthly Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
O'Leary Tactical Income Fund
Canoe Global Income Fund
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
O'Leary U.S. Strategic Yield Fund
Canoe North American Monthly Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
O'Leary Closed-End Funds
Convertible Debentures Income Fund
Canoe Canadian Asset Allocation Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
Floating Rate Income Fund
O'Leary Floating Rate Income Fund (to be renamed Canoe Floating Rate Income Fund)
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
O'Leary Canadian Diversified Income Fund
Canoe Equity Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
O'Leary U.S. Strategic Yield Advantaged Fund
Canoe North American Monthly Income Class
•
s. 5.6(1)(a)(i) -- not the same manager
•
s. 5.6(1)(a)(ii) -- fundamental investment objectives and fee structure not substantially similar
•
s. 5.6(1)(b) -- merger not effected as a Qualifying Exchange or other tax-deferred transaction under the ITA
53. Each Merger was contingent upon the Change of Manager. All required approvals from the unitholders of the O'Leary Funds for the Change of Manager were obtained at the Special Meetings.
Steps for each Merger
54. Prior to effecting the Mergers, if required, each O'Leary Merging Fund will sell any securities in its portfolio that do not meet the investment objectives and investment strategies of the applicable Continuing Fund. Consequently certain O'Leary Merging Funds may temporarily hold cash or money market instruments and may not be fully invested in accordance with their investment objectives for a brief period of time prior to the Merger being effected. Each of Floating Rate Income Fund and O'Leary U.S. Strategic Yield Advantaged Fund will, prior to effecting the Mergers, settle its forward contracts under which it obtained its investment exposure to the applicable Reference Fund and consequently will hold (i) cash and money market investments, (ii) units of the applicable Reference Fund, or (iii) portfolio assets transferred by the applicable Reference Fund.
55. The fair value of each O'Leary Merging Fund's portfolio assets and other assets will be determined at the close of business on the effective date of each applicable Merger in accordance with the constating documents of the applicable O'Leary Merging Fund.
56. Each Continuing Trust Fund or the Fund Corp. (in the case of Canoe Continuing Funds that are classes of Fund Corp.), as applicable, will acquire the investment portfolio assets and other assets of the corresponding O'Leary Merging Fund in exchange for securities of the Continuing Fund.
57. Each Continuing Trust Fund and the Fund Corp. will not assume any liabilities of the corresponding O'Leary Merging Fund and the O'Leary Merging Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the effective date of the applicable Merger.
58. The securities of each Continuing Fund received by the corresponding O'Leary Merging Fund will have an aggregate net asset value equal to the fair value of the portfolio assets and other assets that the Continuing Trust Fund or Fund Corp., as applicable, is acquiring from the O'Leary Merging Fund. The securities of the Continuing Fund will be issued at the applicable class or series net asset value per security as of the close of business on the effective date of the applicable Merger.
59. The O'Leary Merging Funds will distribute a sufficient amount of their net income and net realized capital gains, if any, to unitholders to ensure that they will not be subject to tax for their then current tax year.
60. Immediately thereafter, securities of each Continuing Fund received by the applicable O'Leary Merging Fund will be distributed to unitholders of the O'Leary Merging Fund in exchange for their units of the O'Leary Merging Fund on a dollar-for-dollar and class or series by series basis, as applicable.
61. As soon as reasonably possible following each Merger, and in any case within 60 days, the applicable O'Leary Merging Fund will be wound-up.
62. The Tax-Deferred Mergers will be implemented in a manner that would constitute a Qualifying Exchange. As a result, these O'Leary Merging Funds and the unitholders of such O'Leary Merging Funds will not realize any net capital gains or losses on these Tax-Deferred Mergers. However, the O'Leary Merging Funds will realize capital gains and capital losses on the sale of portfolio assets, or the settlement of forward contracts, prior to the Tax-Deferred Mergers.
63. The Taxable Mergers cannot be implemented on a completely tax-deferred basis and therefore these Mergers will be a taxable transaction. The capital gains and capital losses on the portfolio assets and the forward contracts of these O'Leary Merging Funds will be realized, and any net capital gains will be distributed to unitholders of these O'Leary Merging Funds. The unitholders of these O'Leary Merging Funds will realize any accrued capital gain or capital loss on their units of such O'Leary Merging Funds.
64. In the opinion of the Filer, the Mergers will be beneficial to unitholders of the O'Leary Merging Funds for the following reasons:
(a) Canoe has indicated that the management fees of each series of each O'Leary Merging Fund will not increase on completion of the Mergers and that the MERs of each series of each Continuing Fund are expected to be similar to the MER of its corresponding series of the O'Leary Merging Fund after waivers and absorptions;
(b) each Continuing Fund will have a portfolio of greater value, allowing for increased portfolio diversification opportunities, which may lead to increased returns and/or to a reduction of risk;
(c) each Continuing Fund, as a result of its greater size, will benefit from a larger profile in the marketplace by potentially attracting more securityholders and enabling it to maintain a "critical mass";
(d) a line-up consisting of fewer mutual funds that target similar types of investors will allow Canoe to concentrate its marketing efforts to attract additional assets in the Canoe Funds; ultimately this benefits securityholders as it ensures that each Continuing Fund remains a viable, long-term investment vehicle for existing and potential investors;
(e) for those investors that become securityholders of a class of the Fund Corp. (the Corporate Class Funds), the Continuing Fund will allow greater investment flexibility as investors can switch into other classes within the Fund Corp. without realizing an immediate capital gain on the securities of the Corporate Class Funds; each Corporate Class Fund represents a different portfolio of assets with a separate investment objective providing investors with investment flexibility and diversification opportunities; and
(f) for those O'Leary Merging Funds which are closed-end funds, investors in each Continuing Fund are entitled to buy or redeem all or any portion of their securities daily at the applicable net asset value, resulting in greater liquidity.
65. The Taxable Mergers involve mergers of an O'Leary Merging Fund that is a trust into a Continuing Fund that is a class of Fund Corp. There is no fully tax deferred method to effect such mergers because:
(a) a Qualifying Exchange is only available where the Continuing Fund is a mutual fund trust under the ITA;
(b) a tax-deferred amalgamation under section 87 of the ITA is only available where the O'Leary Merging Fund and the Continuing Fund are both corporations;
(c) a tax deferred transaction under section 86 of the ITA is not available where a trust, such as an O'Leary Merging Fund, is merging into a corporation; and
(d) a tax deferred merger would be available under section 85 of the ITA but it does not result in a fully tax deferred merger. Under this provision, unitholders of the O'Leary Merging Fund would be offered the option of deferring a capital gain on their units by way of a transfer of those units to Fund Corp. Those gains would effectively be transferred to Fund Corp. and realized upon the wind-up of the O'Leary Merging Funds. As a result, Fund Corp. would be required to distribute those capital gains by way of capital gains dividends to other shareholders in Fund Corp. (i.e. to those who were not unitholders in the O'Leary Merging Fund) which Canoe does not view as equitable, as only those shareholders who were formerly invested in the O'Leary Merging Fund experienced the gains.
66. O'Leary and Canoe have analyzed the tax implications of the Mergers from the perspective of unitholders of the O'Leary Merging Funds as well as from the perspective of the O'Leary Merging Funds and the Continuing Funds and have concluded that it is more appropriate to effect the Taxable Mergers on a taxable basis.
67. No commission or other fee will be charged to unitholders of the O'Leary Merging Funds on the issue or exchange of securities of the O'Leary Merging Funds into the Continuing Funds.
Change of Manager
68. In the opinion of the Filer, other than with respect to the changes related to the Proposed Transaction and disclosed in the Circular, the Proposed Transaction is not expected to have any material impact on the business, operations or affairs of the O'Leary Funds or the unitholders of the O'Leary Funds. Canoe intends to manage and administer the O'Leary Funds in a similar manner as O'Leary.
69. All material agreements regarding the administration of the O'Leary Funds will either be amended and restated by Canoe or be terminated and Canoe will enter into new agreements with the relevant service provider, as required. Subject to obtaining any necessary approvals, Canoe will become the successor trustee, investment fund manager and portfolio manager of the O'Leary Funds. CIBC Mellon will remain the custodian of the O'Leary Funds. Stanton will cease to act as portfolio manager of the O'Leary Funds but will be appointed as sub-advisor to certain O'Leary Funds.
70. In the opinion of the Filer, the Change of Manager will be beneficial to unitholders of the O'Leary Funds as it is expected to lead to greater efficiencies, economies of scale and a pooling of resources which will create an even stronger group of Canoe Funds to serve investors.
General
71. Neither the O'Leary Funds nor the Canoe Funds will bear any of the costs and expenses, including any portfolio realignment costs, associated with the Proposed Transaction, including the Mergers, Change of Manager, change of investment objectives and other changes, except for certain fees and expenses with respect to the independent review committees. Any costs and expenses associated with the Proposed Transaction will be borne by O'Leary and/or Canoe, as determined between the parties.
72. The Proposed Transaction has been the result of an extensive analysis by the Filer of trends in the investment fund industry and the need for consolidation given increasing costs and regulatory requirements. After exploring various possible strategies, the Filer determined that a sale to Canoe of the rights to manage the O'Leary Funds would be the best alternative for the O'Leary Funds.
73. The current individuals comprising the O'Leary IRC will automatically cease to be members of the O'Leary IRC by operation of paragraph 3.10(1)(c) of Regulation 81-107 following the Proposed Transaction. Canoe intends that the new members of the independent review committee of the O'Leary Funds will be the same individuals that currently comprise the Canoe IRC. As a result, the O'Leary Funds will continue to have independent oversight from individuals who are experienced at considering conflict of interest matters in the investment fund industry.
74. The Filer considers that the experience and integrity of each of the members of Canoe's current management team is apparent by their education and years of experience in the investment industry. Following the Proposed Transaction, it is expected that all of the current officers and directors of Canoe will continue on in their current capacities and that they will continue to have the requisite integrity and experience as contemplated under subparagraph 5.7(1)(a)(v) of Regulation 81-102.
75. The Closing will not adversely affect Canoe's financial position or its ability to fulfill its regulatory obligations.
76. Canoe and O'Leary are not related parties. Except pursuant to the Proposed Transaction, there are no relationships between Canoe and O'Leary (or their respective affiliates).
77. The Approvals Sought are not detrimental to the protection of investors in the O'Leary Funds or prejudicial to the public interest.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Approvals Sought are granted.
"Hugo Lacroix"
Senior Director, Investment Funds
Autorité des marchés financiers