Mutual Reliance Review System for Exemptive Relief Applications -- Approval of mutual fund merger -- Approval required because merger does not meet the criteria for pre-approval outlined in section 5.6 of NI 81-102 -- Merger will be effected on a taxable basis -- Securityholders of terminating fund provided with timely and adequate disclosure regarding the merger.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b, 5.6(1).
August 16, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR, YUKON TERRITORY
AND NORTHWEST TERRITORIES
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
ACUITY FUNDS LTD.
ACUITY CLEAN ENVIRONMENT GLOBAL EQUITY FUND
(the "Terminating Fund")
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from Acuity on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdictions (the "Legislation") granting approval for the proposed merger (the "Merger") of the Terminating Fund into Acuity Clean Environment Equity Fund (the "Continuing Fund", together with the Terminating Fund, the "Funds") under subsection 5.5(1)(b) of National Instrument 81-102 Mutual Funds ("NI 81-102") (the "Requested Relief").
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.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by Acuity:
1. Acuity is a corporation governed by the laws of Ontario and is the manager and trustee of the Funds. The head office of Acuity is located in Ontario.
2. Each Fund is an open-end mutual fund trust created under the laws of Ontario. The Funds are members of the "Acuity Funds" family and offer Class A and Class F units in all of the Jurisdictions under a simplified prospectus and annual information form dated October 18, 2006, as amended (the "Prospectus"). The Funds also offer Class I units on a private placement basis under applicable prospectus exemptions.
3. The Funds are reporting issuers under the applicable securities legislation of the Jurisdictions and are not on the list of defaulting reporting issuers maintained under the applicable securities legislation of the Decision Makers.
4. Unitholders of the Continuing Fund approved a change to the Fund's fundamental investment objectives at a special meeting of unitholders of the Continuing Fund held on August 7, 2007. The change removed the 30% limit on foreign property investments as currently disclosed in the investment strategy section of the Prospectus. As a result, a reasonable person may consider the fundamental investment objective of the Terminating Fund to be substantially similar to the fundamental investment objective of the Continuing Fund
5. Acuity proposes to merge the Terminating Fund into the Continuing Fund. A press release, material change report and amendment to the Prospectus were filed on SEDAR in June 2007 in connection with the Merger.
6. A notice of meeting and management information circular (the "Circular") in connection with the Merger was filed on SEDAR on July 19, 2007 and was mailed to unitholders of the Terminating Fund on or before July 17, 2007.
7. Unitholders of the Terminating Fund approved the Merger at a special meeting of unitholders that took place on August 7, 2007.
8. Subject to the required approval of the Decision Makers, the Merger will be implemented before September 30, 2007.
9. Following the Merger, the Continuing Fund will continue as a publicly offered open-end mutual fund and the Terminating Fund will be wound up as soon as reasonably practicable.
10. Neither the Terminating Fund nor the Continuing Fund will bear any of the costs and expenses of the Merger, including brokerage commissions resulting from the need for portfolio realignment.
11. Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund for cash at any time up to the close of business on the business day immediately preceding the effective date of the Merger.
12. Unless an exemption has been obtained, each of the Funds follows the standard investment restrictions and practices established by the Decision Makers.
13. The net asset value for each series of units of each of the Funds is calculated on a daily basis on each day that The Toronto Stock Exchange is open for trading.
14. The portfolio assets of the Terminating Fund to be acquired by the Continuing Fund will be acceptable to the portfolio adviser of the Continuing Fund and consistent with the Continuing Fund's investment objectives.
15. Approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approval reorganizations and transfers set out in section 5.6 of NI 81-102 because contrary to section 5.6(1)(b), the Merger will not be effected as a "qualifying exchange" or as a tax-deferred transaction as such terms are defined or understood under the Income Tax Act (Canada).
16. The tax implications of the Merger as well as the differences between the Terminating Fund and the Continuing Fund are described in the Circular so that the unitholders of the Terminating Fund could consider this information before voting on the Merger.
17. Implicit in the approval by unitholders of the Merger is the adoption by the Terminating Fund of the fundamental investment objective of the Continuing Fund. Investors in the Terminating Fund were asked to review those parts of the Circular which describe the change in fundamental investment objective for the Continuing Fund when considering the merits of the Merger of the Terminating Fund into the Continuing Fund.
18. Acuity believes that the Merger is in the best interests of the unitholders of the Terminating Fund for the following reasons:
(a) unitholders of the Terminating Fund will enjoy increased economies of scale as part of a larger Continuing Fund;
(b) the Merger will eliminate the administrative and regulatory costs of operating the Terminating Fund as a separate mutual fund;
(c) the Continuing Fund will have a portfolio of greater value allowing for increased portfolio diversification opportunities; and
(d) the Continuing Fund, as a result of its greater size, will benefit from a larger profile in the marketplace.
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 Requested Relief is hereby approved.