The Securities Commission approved a merger application involving investment funds under the management of Horizons ETFs Management (Canada) Inc. The application sought approval for the merger of two terminating funds, Horizons Active Emerging Markets Dividend ETF (HAJ) and Horizons Active US Dividend ETF (HAU), into the Horizons Active Global Dividend ETF (Continuing Fund). The approval was necessary as the proposed mergers did not meet all pre-approval criteria outlined in National Instrument 81-102 Investment Funds (NI 81-102), specifically regarding the similarity of investment objectives and fee structures between the terminating funds and the continuing fund.
The key facts include:
– The Filer is the manager of all funds involved and is registered as an investment fund manager, portfolio manager, exempt market dealer, commodity trading adviser, and commodity trading manager in various Canadian jurisdictions.
– All funds are established under Ontario law and are exchange-traded mutual funds listed on the Toronto Stock Exchange (TSX).
– The funds are in compliance with securities legislation and follow standard investment restrictions and practices, except where exemptions have been granted.
– The investment objectives of the terminating funds and the continuing fund are similar but not substantially similar, as required by NI 81-102.
– The fee structures are similar, with HAJ and the Continuing Fund charging a management fee of 0.65% of NAV, while HAU charges 0.55%.
– The mergers were subject to review by the independent review committee (IRC) of each fund, which determined the mergers would achieve a fair and reasonable result for the terminating funds.
– Unitholders of the terminating funds were to vote on the mergers, with no meeting required for the continuing fund unitholders.
– The Filer utilized a notice-and-access procedure for the meeting, providing unitholders with a document that included a link to the management information circular.
– The mergers were intended to occur in March 2021, with the terminating funds’ assets transferred to the continuing fund in exchange for units of the continuing fund.
The decision was made under the securities legislation of Ontario, relying on sections 5.5(1)(b), 5.6(1), 5.7(1)(b), and 19.1(2) of NI 81-102, and was contingent upon the prior approval of the unitholders of the terminating funds. The principal regulator concluded that the mergers met the legislative test for approval, provided that the unitholders’ consent was obtained.