frontierAlt Funds Management Limited and frontierAlt All Terrain Canada Fund - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Approval of fund merger despite differences in investment objectives -- statements of continuing fund not required to be sent to unitholders of the terminating fund provided information circular sent in connection with the unitholder.
January 9, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND AND
NEWFOUNDLAND AND LABRADOR
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
FRONTIERALT FUNDS MANAGEMENT LIMITED
(the "Manager")
AND
FRONTIERALT ALL TERRAIN CANADA FUND
(the "Terminating Fund")
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 Fund (together, the "Filers") for a decision under the securities legislation of the Jurisdictions (the "Legislation") for:
(a) approval of the merger (the "Merger") of the Terminating Fund into the frontierAlt All Terrain World Fund (the "Continuing Fund") under clause 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102"); and
(b) approval of any merger, after the date of this decision, of funds managed by the Manager that meet all of the criteria for pre-approval of mergers under section 5.6 of NI 81-102 except for the financial statement delivery requirements of subparagraph 5.6(1)(f)(ii) of NI 81-102 (the "Future Mergers").
Under the Mutual Reliance Review System for Exemptive Relief Applications
(a) the Ontario Securities Commission 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.
"Fund" or "Funds" means, individually or collectively, the Terminating Fund and the Continuing Fund.
Representations
This decision is based on the following facts represented by the Filers:
1. The Manager is a corporation established under the laws of Ontario. The Manager is the manager of each of the Funds.
2. The Terminating Fund is an open-ended mutual fund trust established under the laws of the Province of Ontario pursuant to a certain trust agreement.
3. Units of the Funds are currently qualified for sale in all of the provinces of Canada by a simplified prospectus and an annual information form, each dated June 7, 2007.
4. Each of the Funds is a reporting issuer under the applicable securities legislation of each province of Canada and is not in default of any requirements of applicable securities legislation.
5. The net asset value of each Fund is calculated on a daily basis on each day that the Manager is open for business.
6. The Manager proposes to merge the Terminating Fund into the Continuing Fund on a tax-deferred basis.
7. The proposed Merger of the Terminating Fund into the Continuing Fund will be structured substantially as follows:
(i) The Terminating Fund will transfer all of its assets and liabilities to the Continuing Fund for an amount equal to the net value of the assets transferred, which amount will be satisfied as described in (ii) below.
(ii) The Continuing Fund will issue units of the Continuing Fund to the Terminating Fund having a net asset value equal to the net value of the assets transferred by the Terminating Fund.
(iii) The Terminating Fund will redeem its outstanding units and pay the redemption price for these units by distributing units of the Continuing Fund to the Terminating Fund's unitholders.
(iv) Units of the Continuing Fund received by the unitholders of the Terminating Fund will have an aggregate net asset value equal to the aggregate net asset value of the units of the Terminating Fund which are being redeemed.
(v) As soon as reasonably practicable after the distribution of units of the Continuing Fund by the Terminating Fund, the Terminating Fund will be wound-up.
8. The assets of the Terminating Fund are acceptable to the portfolio manager of the Continuing Fund and are, or will be, consistent with the investment objectives of the Continuing Fund.
9. The units of the Continuing Fund received by a unitholder of the Terminating Fund will have the same fee structure as the units of the Terminating Fund held by that unitholder.
10. Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund at any time up to the close of business immediately before the effective date of the Merger.
11. Any automatic reinvestments of distributions, purchases under pre-authorized chequing plans and automatic withdrawal plans in effect prior to the Merger for the Terminating Fund will be re-established in the Continuing Fund unless the investor advises the Manager otherwise.
12. The costs attributable to the Merger (consisting primarily of legal, proxy solicitation, printing and mailing costs) will be borne by the Manager and will not be borne by the Terminating Fund or the Continuing Fund.
13. At a special meeting of unitholders of the Terminating Fund to be held on January 29, 2008, unitholders of the Terminating Fund will be asked to approve the Merger. A notice of meeting and a management information circular will be mailed to unitholders of the Terminating Fund and filed on SEDAR in accordance with applicable securities legislation.
14. Approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set forth in section 5.6 of NI 81-102 because the Merger involves the merger of funds that do not, in the opinion of the Manager, have "substantially similar investment objectives". In addition, the Manager proposes to indicate to unitholders of the Terminating Fund the manner in which the annual and interim financial statements of the Continuing Fund may be obtained rather than delivering such statements.
15. The primary difference between the fundamental investment objectives of the Terminating Fund and the Continuing Fund is that the Continuing Fund invests principally in equity securities of companies around the world rather than the more limited number of securities which meet the Terminating Fund's criteria of investing primarily in Canadian issuers. However, the Filers submit that the Merger will reduce duplication between the Funds, thereby increasing operational efficiency as costs of the Continuing Fund will be spread across a greater pool of assets, also allowing for greater diversification and ensuring that the Continuing Fund remains a viable, long-term, attractive investment vehicle for existing and potential investors.
16. The most recent annual and interim financial statements of the Continuing Fund will not be sent to unitholders of the Terminating Fund but, instead, the Manager will prominently disclose in the information circular sent to unitholders of the Terminating Fund that they can obtain the most recent interim and annual financial statements of the Continuing Fund by accessing the frontierAlt and SEDAR websites, by toll-free number, by fax or by e-mail.
17. The Filers submit that if a unitholder is interested in reading the financial statements of the Continuing Fund, he or she would take the time to access them by one of the means available. There would be cost savings if the Manager did not have to include the financial statements in the proxy packages sent to unitholders of the Terminating Fund.
18. Except as noted above, as at the time of the Merger, the Merger will meet all of the other conditions necessary for mutual funds to complete a merger without regulatory approval as prescribed by section 5.6 of NI 81-102.
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 Merger and the Future Mergers are approved provided that:
(a) the information circular sent to unitholders with respect to the Merger or Future Merger provides sufficient information about the applicable merger to permit unitholders to make an informed decision about that merger;
(b) the information circular sent to unitholders in connection with the Merger or a Future Merger prominently discloses that unitholders can obtain the most recent interim and annual financial statements of the Continuing Fund and a future continuing fund by accessing the frontierAlt and SEDAR websites, upon request and at no cost by calling toll-free, by fax or by e-mail;
(c) upon request by a unitholder for financial statements, the Manager will make best efforts to provide the unitholder with financial statements of the Continuing Fund and a future continuing fund in a timely manner so that the unitholder can make an informed decision regarding the Merger or a Future Merger; and
(d) the Terminating Fund, the Continuing Fund and any mutual fund involved in a Merger or a Future Merger has, or will have, an unqualified audit report in respect of its last completed financial period.
This Decision, as it relates to the jurisdiction of a Decision Maker, will terminate one year after the publication in final form of any legislation or rule of that Decision Maker dealing with matters in paragraph 5.5(1)(b) of NI 81-102.