Excel Funds Management Inc. (Re), 2012 CanLII 65901

Headnote

NP 11-203 – Relief from requirement to deliver a prospectus in connection with a distribution of exchange-traded receipts with underlying interests in silver – Filer is a Canadian crown corporation – The receipts are listed for trading on the Toronto Stock Exchange – Filer will provide an Information Statement at the time of distribution and maintain additional information on a website – Filer will file certain prescribed disclosure documents on SEDAR – Securities Act, R.S.O. 1990, c. S5

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S5, ss. 53(1) and 74.

October 26, 2012

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

Excel Funds Management Inc.

(the Filer or Excel)

and

Excel Income and Growth Fund (the Terminating Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval of the merger (the Merger) of the Terminating Fund into Excel EM High Income Fund (the Continuing Fund) (together with the Terminating Fund, the Funds) under paragraph 5.5(1)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) (such exemption, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator (Principal Regulator) for this application, and

(b) the Filer has provided notice that subsection 4.7(1) 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, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Nunavut and Yukon.

Interpretation

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

Representations

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

The Filer

1. Excel is a corporation governed by the laws of Ontario with its head office in Mississauga, Ontario.

2. Excel is registered as an investment fund manager in Ontario.

3. Excel is the manager and promoter of the Funds.

The Funds

4. Each of the Funds is an open-end mutual fund trust established under the laws of the Province of Ontario by a master trust agreement.

5. Units of the Funds are currently offered for sale under a simplified prospectus and annual information form dated September 28, 2012 in all of the provinces and territories of Canada. The Funds are reporting issuers under the applicable securities legislation of each province and territory of Canada. None of Excel or the Funds is in default of securities legislation in any province or territory of Canada.

6. Other than circumstances in which the securities regulatory authority of a province or territory of Canada has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under the Legislation.

7. The net asset value (NAV) for each series of units of each Fund is calculated as at 4:00 p.m. Eastern Time on each day that the Toronto Stock Exchange is open for trading.

The Merger

8. A press release and material change report in respect of the proposed Merger were filed on SEDAR on September 28, 2012. Units of the Terminating Fund ceased to be available for sale on that date.

9. As required by National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), Excel presented the terms of the Merger to the Funds’ Independent Review Committee (IRC) for its review and recommendation. The IRC reviewed the potential conflict of interest matters related to the proposed Merger and has determined that the proposed Merger, if implemented, would achieve a fair and reasonable result for each of the Funds.

10. Unitholders of the Terminating Fund will continue to have the right to redeem or transfer their units of the Terminating Fund at any time up to the close of business on the business day prior to the effective date of the Merger.

11. Approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers as set out in section 5.6 of NI 81-102, namely because: (i) a reasonable person may not consider the fundamental investment objectives of the Terminating Fund and that of the Continuing Fund to be “substantially similar”; (ii) a reasonable person may not consider the fee structure of the Terminating Fund and that of the Continuing Fund to be “substantially similar”; and (iii) the Merger will not be a tax-deferred transaction as described in paragraph 5.6(1)(b) of NI 81-102. Except for these three reasons, the Merger will otherwise comply with all of the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.

12. Excel has determined that it would not be appropriate to effect the Merger as a “qualifying exchange” within the meaning of section 132.2 of the Income Tax Act (Canada) (the Tax Act) or as a tax-deferred transaction for the following reasons: (i) the Terminating Fund has sufficient loss carry-forwards to shelter any net capital gains that could arise for it on the taxable disposition of its portfolio assets on the Merger; (ii) substantially all the unitholders in the Terminating Fund 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 and use it against current capital gains or even carry it back as permitted under the Tax Act; (iii) effecting the Merger on a taxable basis would preserve the net losses and loss carry-forwards in the Continuing Fund; and (iv) effecting the Merger on a taxable basis will have no other tax impact on the Continuing Fund.

13. A notice of meeting, management information circular and form of proxy in connection with the Merger were mailed to unitholders of the Terminating Fund on October 12, 2012 and were subsequently filed on SEDAR. The most