The Securities Commission approved an investment fund merger between the Terminating Fund and the Continuing Fund, managed by Horizons ETFs Management (Canada) Inc. The approval was necessary as the merger did not meet all pre-approval criteria outlined in National Instrument 81-102 Investment Funds (NI 81-102). Specifically, the funds had dissimilar investment objectives and fee structures, and the merger would not qualify as a tax-deferred transaction under the Income Tax Act.
The Terminating Fund aimed to replicate the performance of the Morningstar Broad Hedge Fund Index, hedged to the Canadian dollar, while the Continuing Fund sought long-term capital appreciation through global asset classes. The fee structures also differed, with the Terminating Fund charging a management fee of 0.95% of its NAV, and the Continuing Fund charging 0.85% plus a performance fee under certain conditions.
The merger was to be conducted on a taxable basis, with the assets and liabilities of the Terminating Fund reallocated to the Continuing Fund. The process complied with all other criteria for pre-approved reorganizations and transfers under section 5.6 of NI 81-102.
The decision was based on representations by the Filer, including that both funds were alternative mutual funds exposed to varied global asset classes, and that the merger would be fair and reasonable for the Terminating Fund as determined by its independent review committee (IRC). Shareholders of the Terminating Fund were provided with adequate disclosure regarding the merger, including differences in investment objectives and tax implications, and were given the opportunity to vote on the merger.
The merger was contingent on obtaining prior approval from the shareholders of the Terminating Fund at a special meeting. The costs associated with the merger were to be borne by the Filer, and no sales charges would apply to shareholders in connection with the merger.
The principal regulator, the Ontario Securities Commission, granted the approval, subject to the condition that shareholder approval was obtained.