The Securities Commission approved an investment fund merger between Exemplar Investment Grade Fund (Terminating Fund) and Arrow EC Income Advantage Alternative Fund (Continuing Fund). The approval was necessary as the merger did not meet all pre-approval criteria in National Instrument 81-102 Investment Funds, particularly regarding the similarity of investment objectives and fee structures between the two funds.
Key facts include:
– Both funds are open-end mutual fund trusts established under Ontario law and managed by Arrow Capital Management Inc.
– The Terminating Fund aims to generate income and preserve capital through a diversified portfolio of primarily North American investment grade corporate bonds.
– The Continuing Fund has a similar investment objective but uses leverage and has a different fee structure, including a performance fee.
– The merger required approval from the Terminating Fund’s unitholders and was subject to a positive recommendation from the Independent Review Committee (IRC).
– Costs associated with the merger are borne by the Filer, not the funds.
– The merger is expected to be tax-deferred under the Income Tax Act (Canada).
The reasoning for the approval includes:
– The merger is in the best interests of both funds and their unitholders.
– It will provide economies of scale and potential for better performance and increased portfolio diversification.
– Unitholders of the Terminating Fund were provided with sufficient information to make an informed decision.
The outcome is that the merger was approved, subject to unitholder approval and other conditions, and is expected to occur on or about June 25, 2021. The decision was made under the authority of sections 5.5(1)(b), 5.6(1), 5.7(1)(b), and 19.1(1) of National Instrument 81-102 Investment Funds.