Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger -- approval required because the proposed merger does not meet the criteria for pre-approval -- investment objectives of the funds are not substantially similar -- merger is not a "qualifying exchange" or a tax-deferred transaction under Income Tax Act -- financial statements of continuing fund not sent to unitholders of the terminating fund in connection with the merger but the information circular sent for unitholder meeting discloses the various ways unitholders can access the financial statements.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6.

November 25, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

BLUMONT CAPITAL CORPORATION

("BluMont")

AND

IN THE MATTER OF

BLUMONT CANADIAN FUND

(the "Terminating Fund")

AND

IN THE MATTER OF

NORTHERN RIVERS CONSERVATIVE GROWTH FUND

(the "Continuing Fund")

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the "Application") from BluMont on behalf of the Terminating Fund, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for approval pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 -- Mutual Funds ("NI 81-102") to merge the assets of the Terminating Fund with the assets of the Continuing Fund (the "Merger").

Under NP 11-203 (a passport review application):

(a) the Ontario Securities Commission is the principal regulator for this Application; and

(b) BluMont has provided notice that Section 4.7(a) of Multilateral Instrument 11-102 -- Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories and Yukon Territory (the "Jurisdictions").

Interpretation

Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning in this decision unless otherwise defined in this decision.

Representations

This decision is based on the following facts represented by BluMont:

BluMont

1. BluMont is a corporation governed by the laws of Ontario and its head office is located in Toronto, Ontario.

2. BluMont has been the trustee and manager of the Terminating Fund from the inception date of such fund (August 25, 1997) to December 1, 2001, on which date BluMont transferred trusteeship and management of the Terminating Fund to Burgeonvest Securities Limited ("Burgeonvest"). On December 1, 2004, Burgeonvest then transferred trusteeship and management of the Terminating Fund to its affiliate, Halcyon Fund Management Inc. ("Halcyon"). Throughout this period, and subsequent to the transfer to Burgeonvest, BluMont or its affiliate, Integrated Investment Management Inc., continued to provide investment advisory and management services pursuant to subadvisory agreements entered into between BluMont and each of Burgeonvest and Halcyon. Effective November 8, 2007, Halcyon transferred trusteeship and management of the Terminating Fund back to BluMont and BluMont continues to provide trustee, management and advisory services to the Terminating Fund to the present.

3. Northern Rivers Capital Management Inc. ("NRCM") was the trustee and manager of the Continuing Fund from the inception date of such fund (April 27, 2007) to April 1, 2010. On February 23, 2010, BluMont acquired all of the outstanding shares of NRCM. Effective April 1, 2010, BluMont and NRCM amalgamated such that, since such date, BluMont has been the trustee and manager of the Continuing Fund.

4. BluMont is not in default of securities legislation in any of the Jurisdictions.

The Funds

5. Each of the Terminating Fund and the Continuing Fund (together, the "Funds") is an open-end investment trust governed by a declaration of trust under the laws of Ontario. BluMont is the trustee and manager of each of the Funds.

6. Each of the Funds is a mutual fund as defined in the Securities Act (Ontario).

7. Each of the Funds is a reporting issuer in all the provinces and territories of Canada (other than Nunavut and, in the case of the Continuing Fund, Quebec) and is separate and distinct from each other in all respects, including as to its assets and liabilities.

8. Units of the Terminating Fund (the "Units") are being offered in all provinces and territories (other than Nunavut) under a simplified prospectus and annual information form dated August 23, 2010. Units of the Continuing Fund are being offered in all provinces and territories (other than Quebec and Nunavut) under a simplified prospectus and annual information form dated August 20, 2010.

9. The investment practices of each Fund comply or will comply in all respects with the requirements of NI 81-102, except to the extent that the Funds have been granted exemptions from the required securities regulatory authorities to deviate therefrom.

10. Neither of the Funds is in default of securities legislation in any of the Jurisdictions.

11. The Funds have complied with Part 11 of National Instrument 81-106 -- Investment Fund Continuous Disclosure ("NI 81-106") in connection with the Merger.

12. As required by National Instrument 81-107 -- Independent Review Committee for Investment Funds ("NI 81-107"), an Independent Review Committee (the "IRC") has been appointed for the Funds, and BluMont presented the terms of the Merger to the IRC for a recommendation. The IRC considered the proposed Merger and provided a positive recommendation to the Filer on the basis that the Merger would achieve a fair and reasonable result for each of the Funds.

13. BluMont believes that the Merger will be beneficial to unitholders of the Terminating Fund ("Unitholders") for the following reasons:

(a) the Continuing Fund will have a greater level of assets which will allow for, among other things, increased portfolio diversification opportunities; greater liquidity of investments; and increased economies of scale for operating expenses;

(b) the Terminating Fund and the Continuing Fund have had diminishing resources which is hampering their ability to buy and hold equity securities of worthwhile Canadian companies; and

(c) the Merger will eliminate the administrative and regulatory costs of operating the Terminating Fund as a separate mutual fund, which because of its small size, will no longer be economically viable to operate on a stand-alone basis.

The Merger

14. Subject to Unitholder approval, the Merger will be structured as follows:

(a) the value of the Terminating Fund's portfolio and other assets will be determined at the close of business on the effective date of the Merger in accordance with the Terminating Fund's amended and restated declaration of trust dated as of November 8, 2007;

(b) the Continuing Fund will acquire all or substantially all of the investment portfolio and the assets of the Terminating Fund in exchange for Series A trust units of the Continuing Fund;

(c) the Continuing Fund will not assume the Terminating Fund's liabilities and the Terminating Fund will retain sufficient assets to satisfy its estimated liabilities, if any, as of the date of the Merger;

(d) the Series A trust units of the Continuing Fund received by the Terminating Fund will have an aggregate net asset value equal to the value of the Terminating Fund's portfolio and other assets and will be issued at the net asset value per Series A unit of the Continuing Fund as of the close of business on the effective date of the Merger;

(e) immediately thereafter, the Series A trust units of the Continuing Fund received by the Terminating Fund will be distributed to Unitholders on apro rata basis in exchange for their Units; and

(f) as soon as reasonably possible following the Merger, the liabilities of the Terminating Fund will be satisfied and the Terminating Fund will be wound up.

15. Unitholders will continue to have the right to redeem Units held by them and the right to switch their investment to other mutual funds offered and managed by BluMont until the close of business on the business day before the effective date of the Merger, provided that BluMont is in receipt of a written redemption or switch order, duly completed and executed by or on behalf of the applicable unitholder, with the consequent income tax implications. Redemption and switch requests not settled on or before the effective date of the Merger will be deemed to be requests to redeem trust units of the Continuing Fund and the normal settlement procedures will apply after the effective date of the Merger. Unitholders will be able to subsequently redeem, in the ordinary course, the trust units of the Continuing Fund that they acquire through the Merger.

16. Completing the Merger on a taxable basis will allow for the retention of capital loss carry forwards in the Continuing Fund. These unused tax losses would otherwise expire upon implementation of the Merger on a tax-deferred basis.

17. Substantially all of the Unitholders have an accrued capital loss on their units and effecting the Merger on a taxable basis will afford them the opportunity to realize that loss in connection with the Merger and use it against current capital gains or carry it back as permitted by theIncome Tax Act (Canada) (the "Tax Act").

18. Securities regulatory approval for the Merger is required under Section 5.1(1)(a) of NI 81-102 because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in Section 5.6 of NI 81-102 in the following ways:

(a) the fundamental investment objective of the Terminating Fund is not substantially similar to the fundamental investment objectives of the Continuing Fund . Although both the Terminating Fund and the Continuing Fund invest primarily in equity securities across a broad range of sectors, the Continuing Fund invests primarily in equity securities of North American companies while the Terminating Fund invests primarily in equity securities of Canadian companies;

(b) the Merger will not qualify as a "qualifying exchange" under the Tax Act; and

(c) the materials sent to Unitholders in connection with the Merger did not include copies of the Continuing Fund's annual and interim financial statements, as contemplated by Section 6.5(1)(f)(ii) of NI 81-102. However, the circular sent to Unitholders did contain disclosure that Unitholders can obtain a copy of the Continuing Fund's financial statements at no cost by accessing the SEDAR website at www.sedar.com or by requesting a copy of such documents from BluMont, in which case, such requested materials would be promptly mailed to the requesting Unitholder.

19. The size and net asset values of the Terminating Fund and the Continuing Fund are substantially different. As at September 30, 2010, the net asset value (the "NAV") of the Terminating Fund was $15.3 million (NAV per unit -- $20.84) and the NAV of the Continuing Fund was $4.8 million (NAV per unit -- $26.16).

Approval of Unitholders

20. The approval of the Merger by Unitholders is required because:

(a) a reasonable person might consider that, as a result of the Merger, there has been a change in the fundamental investment objectives of the Terminating Fund; and

(b) the Merger will result in a transfer of the assets of the Terminating Fund to the Continuing Fund, following which: (i) the Terminating Fund will cease to continue after the Merger; and (ii) the Merger will result in the Unitholders becoming holders of trust units of the Continuing Fund.

21. The Unitholders approved the Merger at a special meeting of Unitholders held on November 19, 2010. The Merger was approved by 97% of the votes cast at the special meeting. Subject to obtaining securities regulatory approval, it is expected that the Merger will occur on or about November 26, 2010.

Approval of unitholders of the Continuing Fund

22. Notice of the proposed Merger was sent to all unitholders of the Continuing Fund.

23. The approval of the Merger by unitholders of the Continuing Fund is not required pursuant to Section 5.1(g) of NI 81-102 as the Merger does not represent a material change to the Continuing Fund.

Decision

The Principal Regulator is satisfied that the test contained in the Legislation that provides the Principal Regulator with the jurisdiction to make the decision set forth herein has been met.

The decision of the Principal Regulator under the Legislation is that approval for the Merger is granted.

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission