Aston Hill Asset Management Inc. (Re), 2016 CanLII 29122

May 17, 2016

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 ASTON HILL ASSET MANAGEMENT INC. (the Filer)

AND ASTON HILL GROWTH & INCOME FUND AND ASTON HILL GLOBAL GROWTH & INCOME FUND (the Terminating Funds)

AND

ASTON HILL GROWTH & INCOME CLASS AND ASTON HILL GLOBAL GROWTH & INCOME CLASS (the Terminating Classes)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Funds and the Terminating Classes for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) granting approval under paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) to merge (the Mergers): (a) the Terminating Funds into Aston Hill High Income Fund (“HI Fund”); and (b) the Terminating Classes into Aston Hill High Income Class (HI Class) (the Approval 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 (Jurisdictions).

Interpretation

Defined terms contained in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.

Representations

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

The Filer

1. The Filer is a corporation governed by the laws of Ontario with its head office in Toronto, Ontario.

2. The Filer is registered under NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations as a portfolio manager and exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Quebec, and as an investment fund manager in Newfoundland and Labrador, Ontario and Quebec.

3. The Filer is the manager and promoter of the Terminating Funds, the Terminating Classes, HI Fund and HI Class.

4. The Filer is not in default of securities legislation in the Jurisdictions.

The Terminating Funds and the Terminating Classes

5. Each of the Terminating Funds has been established as a mutual fund trust under the laws of the Province of Ontario and is governed by a master declaration of trust dated June 30, 2011 (as amended from time to time, the Declaration of Trust) with the Filer acting as trustee (the Trustee).

6. Each of the Terminating Classes is a class of shares of Aston Hill Corporate Funds Inc., a mutual fund corporation.

7. Each of the Terminating Funds and Terminating Classes is a reporting issuer under applicable securities legislation of the Jurisdictions.

8. Each of the Terminating Funds and Terminating Classes were distributed under a simplified prospectus dated May 12, 2015, as amended by Amendment No. 1 dated October 19, 2015 and as further amended by Amendment No. 2 dated December 18, 2015.

9. The Terminating Funds and the Terminating Classes are not in default of securities legislation in the Jurisdictions.

The Continuing Funds

10. HI Fund has been established as a mutual fund trust under the laws of the Province of Ontario and is governed by the Declaration of Trust with the Filer acting as trustee. HI Class is a class of shares of Aston Hill Corporate Funds Inc.

11. HI Fund and HI Class are reporting issuers under applicable securities legislation of the Jurisdictions.

12. Each of HI Fund and HI Class are distributed under a simplified prospectus dated August 28, 2015, as amended by Amendment No. 1 dated October 9, 2015.

13. HI Fund and HI Class are not in default of securities legislation in the Jurisdictions.

The Proposed Mergers

14. The Filer intends to merge: (a) the Terminating Funds into HI Fund; and (b) the Terminating Classes into HI Class.

15. The Approval Sought is required because the Mergers satisfy the requirements for pre-approved reorganizations and transfers set out in subsection 5.6(1) of NI 81-102, except that a reasonable person would not consider (a) HI Fund to have substantially similar fundamental investment objectives as each Terminating Fund, or (b) HI Class to have substantially similar fundamental investment objectives as each Terminating Class.

16. As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Filer presented the terms of the Mergers which raise a conflict of interest for the purposes of NI 81-107 and the process proposed for completion of the Merger to the Independent Review Committee (IRC) for each Terminating Fund, each Terminating Class, HI Fund and HI Class on March 14, 2016 for its review and recommendation. The IRC reviewed the proposed transactions and determined that the proposed Mergers, if implemented, would achieve a fair and reasonable result for each of the Terminating Funds, Terminating Classes, HI Fund and HI Class.

17. The board of directors of the Filer approved and ratified the Mergers.

18. A press release, material change report and notice of meeting in respect of the proposed Mergers were filed on the system for electronic disclosure and retrieval (SEDAR) on March 14, 2016, March 15, 2016 and March 21, 2016 (as amended March 22, 2016) respectively.

19. The Filer has determined that the Mergers will be a material change for HI Fund and HI Class.

20. In connection with the meetings of securityholders for each of the Terminating Funds, Terminating Classes, HI Fund and HI Class (each a Meeting), a notice of meeting and a management information circular dated April 5, 2016 and a related form of proxy (the Meeting Materials) were mailed to securityholders of each Fund on April 14, 2016 and were filed on SEDAR on April 18, 2016.

21. On May 9, 2016, securityholders of the Terminating Funds, the Terminating Classes, HI Fund and HI Class approved the Mergers and certain related matters as set out in the Circular. Subject to receiving the necessary approvals, it is expected that the Mergers will take place on or about May 18, 2016 (the Merger Date).

22. The Meeting Materials provided securityholders of the Terminating Funds and the Terminating Classes with information about, among other things, the differences between the Terminating Funds and HI Fund and between the Terminating Classes and HI Class, the management fees of HI Fund and HI Class and the tax consequences of the Mergers. The Meeting Materials also described the various ways in which securityholders could obtain a copy of various documents in respect of each of the Terminating Funds, the Terminating Classes, HI Fund and HI Class at no cost. Accordingly, securityholders of the Terminating Funds and the Terminating Classes have had an opportunity to consider this information prior to voting on the Mergers.

23. A summary of the IRC’s recommendation was included in the Meeting Materials sent to securityholders of the Terminating Funds, the Terminating Classes, HI Fund and HI Class as required by section 5.1(2) of NI 81-107.

24. If the necessary approvals are obtained, the following steps will be carried out to effect the Mergers:

Merger resulting in HI Fund as the continuing fund

(a) Each Terminating Fund will transfer all of its assets and liabilities to HI Fund for an amount equal to the net value of the assets transferred.

(b) HI Fund will issue units to each Terminating Fund having a net asset value equal to the net value of the assets transferred by the Terminating Fund determined based on an exchange ratio established as of the close of trading on the business day immediately preceding the Merger Date.

(c) The exchange ratio will be calculated based on the relative net asset value of each of the Terminating Fund’s units and HI Fund’s units. Immediately following the transfer of the assets of each Terminating Fund to HI Fund and the issuance of HI Fund units to each Terminating Fund, all units of the Terminating Funds will be automatically redeemed and each Terminating Fund unitholder participating in the Merger will receive such number of HI Fund units as is equal to the number of units of each of the Terminating Funds held multiplied by the exchange ratio. The Terminating Funds will redeem their outstanding units and pay the redemption price for these units by distributing units of HI Fund to the Terminating Funds' unitholders.

(d) Holders of series A units, series F units, series I units, series UA units and series UF units of the Terminating Funds will become unitholders of the corresponding series of units of HI Fund. Holders of series X units of Aston Hill Growth & Income Fund will become unitholders of series X units of HI Fund.

(e) Any cash acquired by HI Fund in connection with the Mergers will be invested in accordance with the investment objectives, strategies, and restrictions of HI Fund.

(f) Units of HI Fund received by the unitholders of the Terminating Funds will have an aggregate net asset value equal to the aggregate net asset value of the units of the Terminating Funds being redeemed.

(g) Following the Mergers, each of the Terminating Funds will be wound up as soon as reasonably practicable.

Merger resulting in HI Class as continuing class

(a) On the Merger Date, the shares of each series of the Terminating Classes will be converted to shares of the relevant series of HI Class. Holders of series A shares, series F shares, series I shares, series TA6 shares or series TF6 shares of the Terminating Classes will become shareholders of the corresponding series of shares of HI Class.

(b) Each Terminating Class will transfer all of its assets and liabilities to HI Class for an amount equal to the net asset value of the assets transferred.

(c) Any cash acquired by HI Class in connection with the Mergers will be invested in accordance with the investment objectives, strategies, and restrictions of HI Class.

(d) Shares of HI Fund received by the shareholders of the Terminating Classes will have an aggregate net asset value equal to the aggregate net asset value of the shares of the Terminating Classes.

(e) The Terminating Classes will be effectively terminated as the Manager will cease to offer these classes of shares.

25. The Filer will pay all costs and expenses relating to the solicitation of proxies and holding the Meetings in connection with the Mergers as well as the costs of implementing the Mergers, including any brokerage fees.

26. No sales charges will be payable in connection with the acquisition by HI Fund and HI Class of any of the investment portfolios of the Terminating Funds and the Terminating Classes, respectively.

27. The Mergers will be a "qualifying exchange" within the meaning of section 132.2 of the Income Tax Act (the Tax Act) or will be a tax-deferred transaction under subsection 86(1) of the Tax Act.

28. The Filer will not receive any compensation in respect of the acquisition, sale or redemptions of the securities of the Terminating Funds, Terminating Classes, HI Fund or HI Class.

29. The Terminating Funds, the Terminating Classes, HI Fund and HI Class have the same valuation procedures.

30. HI Fund and HI Class will have a lower fee structure than those of the Terminating Funds and Terminating Classes, respectively.

31. The risk profile of HI Fund and HI Class are the same as those of the Terminating Funds and Terminating Classes.

32. The portfolios and other assets of the Terminating Funds and the Terminating Classes to be acquired by HI Fund and HI Class, respectively, as a result of the Mergers are currently, or will be, acceptable to the portfolio advisors of HI Fund and HI Class, respectively, prior to the effective date of the Mergers.

33. The Terminating Funds and HI Fund are, and are expected to continue to be at all material times, mutual fund trusts under the Tax Act and, accordingly, units of both the Terminating Funds and HI Fund are "qualified investments" under the Tax Act for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax free savings accounts.

34. The Filer believes that the Mergers will be beneficial to securityholders of the Terminating Funds, the Terminating Classes, HI Fund and HI Class for the following reasons:

(a) Securityholders will have exposure to actively managed portfolios with broader investment objectives.

(b) Upon completion of the Mergers, HI Fund and HI Class will each have a greater level of assets which may result in economies of scale for operating expenses.

(c) HI Fund and HI Class are expected to have greater level of liquidity than each Terminating Fund, Terminating Class, HI Fund or HI Class separately.

(d) The management fee for the securityholders of the Terminating Funds and Terminating Classes will decrease or remain the same as a result of the Mergers. The series A, series UA and/or series TA6 securities of HI Fund and HI Class each pay a management fee of up to 1.90% per annum compared to 2.00% per annum for series A, series UA and/or series TA6 securities of the Terminating Funds and Terminating Classes. Similarly, series F, series UF and/or series TF6 securities of HI Fund and HI Class each pay a management fee of up to 0.90% per annum compared to 1.00% per annum for series F, series UF and/or series TF6 securities of the Terminating Funds and Terminating Classes. The management fee for Series X units remain the same.

35. The foregoing reasons for the Mergers were set out in the Meeting Materials along with certain prospectus-level disclosure concerning HI Fund and HI Class, including information regarding investment objectives and strategies, the portfolio manager and risk factors applicable to an investment in HI Fund and/or HI Class.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Approval Sought is granted.

“Vera Nunes”

Vera Nunes

Manager, Investment Funds and Structured Products Branch

Ontario Securities Commission