MI 11-102 and NP 11-203 -- manager of the filer mutual fund proposed a rollover of the filer mutual fund into another mutual fund -- transaction requires approval under paragraph 5.5(1)(b) of NI 81-101 -- approval granted.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, s. 5.5.
Citation: Re Dominion Equity Resource Growth Class of Brickburn Funds Inc., 2015 ABASC 656
April 21, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DOMINION EQUITY RESOURCE GROWTH CLASS OF BRICKBURN FUNDS INC.
The securities regulatory authority or regulator in each of the jurisdictions (the Decision Maker) has received an application from Brickburn Asset Management Inc. (the Manager) and Dominion Equity Resource Growth Class (the Terminating Fund and, together with the Manager, the Filers) of Brickburn Funds Inc. for approval under the securities legislation of the Jurisdictions (the Legislation) as required by paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) to effect the rollover (the Transaction) of the Terminating Fund into the Brickburn Small Cap Class (the Continuing Fund and, together with the Terminating Fund, the Funds) of Brickburn Funds Inc., (the Corporation) as more particularly described below (the Approval Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for this application;
(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia; and
(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions or MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
This decision is based on the following facts represented by the Filers:
1. The Manager is the investment fund manager of each of the Funds. The Manager is a corporation existing under the laws of Alberta having its head office in Calgary, Alberta. The Manager is registered as a portfolio manager and an investment fund manager in Alberta, British Columbia, Saskatchewan, Manitoba and Ontario. The Manager is not in default under the securities legislation of any jurisdiction.
2. The Corporation is the issuer of the Funds and of Brickburn Income Growth Class (Brickburn Fund), each such fund representing a class of mutual fund shares of the Corporation. The Corporation is authorized to issue an unlimited number of shares in respect of each Fund (a class of shares) in series. The Corporation designated Class A, Class B and Class C shares respectively to the Terminating Fund, the Continuing Fund and the Brickburn Fund.. The Terminating Fund is a reporting issuer in Alberta, British Columbia, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick and Nova Scotia. The Continuing Fund is a reporting issuer in Alberta, British Columbia, Saskatchewan, Manitoba and Ontario. As a result of the Transaction, the Continuing Fund will become a reporting issuer in Québec, New Brunswick and Nova Scotia. Neither the Corporation nor either Fund is in default under the securities legislation of any jurisdiction.
3. The Manager and the Funds will seek securityholder approval in respect of the Transaction for each of: (i) the Terminating Fund as required by paragraph 5.1(f) of NI 81-102 and applicable corporate law, and (ii) the Continuing Fund pursuant to applicable corporate law. Special meetings (the Special Meetings) of the securityholders of each Fund are expected to be held on or about April 21, 2015.
4. The Transaction will be effected on a tax-deferred basis by way of a reallocation of the assets of the Terminating Fund to the Continuing Fund within the Corporation and will not result in a taxable disposition. Securityholders of the Terminating Fund will not realize a capital gain or a capital loss on the exchange of their securities of the Terminating Fund for securities of the Continuing Fund. The aggregate adjusted cost base of the securityholders' securities of the Terminating Fund will become the aggregate adjusted cost base of the securities of the Continuing Fund they receive on the exchange. Securityholders that have an accrued capital gain or loss on their securities of the Terminating Fund will continue to have such accrued gain or loss on their securities of the Continuing Fund.
5. A press release describing the Transaction has been issued and the press release and material change report, which give notice of the proposed Transaction, have been filed on the Terminating Fund's SEDAR profile. In addition, the simplified prospectus, annual information form and fund facts in respect of the Terminating Fund have been amended to account for the Transaction and are available on SEDAR.
6. A management information circular and proxy package in respect of the Special Meetings has been mailed to the securityholders of each Fund and has been filed on SEDAR. In addition, the fund facts of the Continuing Fund has been mailed to the securityholders of the Terminating Fund.
7. The management information circular contains a description of the Transaction, information about the Terminating Fund and the Continuing Fund, including the differences in the fundamental investment objectives and fee structure of each Fund, and income tax considerations for the securityholders of each Fund. The management information circular also describes the various ways in which securityholders can obtain copies of the current prospectus, annual information form, fund facts, most recent interim and annual financial statements and management reports of fund performance for the Continuing Fund.
8. Subject to receipt of regulatory and securityholder approval, the Terminating Fund will roll into the Continuing Fund on or about April 24, 2015 (the Effective Date) and the Continuing Fund will continue as a publicly offered open-ended mutual fund.
9. The articles of amalgamation of the Corporation will be amended to authorize the exchange of all of the outstanding shares of each series of the Terminating Fund for shares of the same series of the Continuing Fund. Securities of the Continuing Fund received by the securityholders of the Terminating Fund will have an aggregate net asset value equal to the aggregate net asset value of the securities of the Terminating Fund which are being exchanged.
10. The Terminating Fund will be wound up as soon as reasonably possible following the Effective Date.
11. Securityholders of the Terminating Fund will continue to have the right to redeem securities of the Terminating Fund up to the close of business on the business day immediately before the Effective Date.
12. The net asset value for each series of the Funds is calculated on a daily basis on each day that the Toronto Stock Exchange is open for trading and the Terminating Fund and the Continuing Fund have substantially similar valuation procedures.
13. The Manager will pay the costs and expenses associated with the Transaction. These costs may include legal and accounting fees, brokerage fees, printing and mailing costs and regulatory fees.
14. The administration fees of each applicable series of the Continuing Fund will be substantially lower than the administration fees of the corresponding series of the Terminating Fund. The small size of the Terminating Fund's assets relative to its fixed and other expenses would result in high costs within the Terminating Fund if it continued to operate.
15. The securityholders of the Terminating Fund and the Continuing Fund will enjoy increased economies of scale and lower fund operating expenses as part of the Continuing Fund.
16. Pre-approval of the Transaction under section 5.6 of NI 81-102 is not available because (i) neither the fundamental investment objectives nor the fee structure of the Terminating Fund and Continuing Fund are substantially similar; (ii) the Continuing Fund is not a reporting issuer in, and does not have a current prospectus in Québec, New Brunswick or Nova Scotia. In all other respects, the Transaction will satisfy the requirements under subsection 5.6(1) of NI 81-102.
17. The Continuing Fund can, if the Manager so chooses, hold all of the existing securities of the Terminating Fund following the Transaction without violating any of its stated investment objectives.
18. The Independent Review Committee of the Funds (the IRC) has reviewed the proposed Transaction and the process to be followed in connection with the Transaction and has advised the Manager that, in the opinion of the IRC, the Transaction achieves a fair and reasonable result for the Terminating Fund and the Continuing Fund.
The Decision of the Decision Makers under the Legislation is that the Approval Sought is granted.