Excel Funds Management Inc. and Excel Latin America Fund, 2017 CanLII 14684

March 17, 2017

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 Manager)

and

Excel Latin America Fund (the Terminating Fund and together with the Manager, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Manager on behalf of the Terminating Fund for a decision under the securities legislation of the Jurisdiction for approval under paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) of the proposed merger (the Merger) of the Terminating Fund into Excel Emerging Markets Fund (the Continuing Fund, together with the Terminating Fund, the Funds) (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 each of the provinces and territories of Canada, other than the province of Ontario (the Other 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 Filers:

The Manager

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

2. The Manager is registered as an investment fund manager in the Provinces of Newfoundland and Labrador, Ontario and Quebec.

3. The Manager is the manager and promoter of the Funds.

The Funds

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

5. Units of the Funds are currently qualified for sale under a simplified prospectus, annual information form and fund facts documents, each dated September 30, 2016 (collectively, the Offering Documents).

6. Each of the Funds is a reporting issuer under the applicable securities legislation of the Jurisdiction and the Other Jurisdictions (the Legislation).

7. Each of the Funds is subject to NI 81-102.

8. Neither the Manager nor the Funds is in default under the Legislation.

9. 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.

10. The net asset value (NAV) for each series of the Funds, as applicable, is calculated on a daily basis in accordance with the Funds’ valuation policy and as described in the Offering Documents.

The Merger

11. The Manager intends to reorganize the Funds by merging the Terminating Fund into the Continuing Fund.

12. Regulatory 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”; and (ii) a reasonable person may not consider the fee structure of the Terminating Fund and that of the Continuing Fund to be “substantially similar”.

13. Except for the reasons noted in paragraph 12 above, 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.

14. The Manager is of the view that the Merger will not be a “material change” for the Continuing Fund.

15. No sales charges will be payable in connection with the acquisition by the Continuing Fund of the investment portfolio of the Terminating Fund.

16. 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.

17. A press release and material change report in respect of the proposed Merger were filed on SEDAR on February 6, 2017. Units of the Terminating Fund ceased to be available for sale on that date.

18. The Manager has determined that it believes that it would be most efficient to implement the Merger on a tax-deferred basis as a “qualifying exchange”, within the meaning of section 132.2 of the Income Tax Act (Canada) (the Tax Act), as a tax-deferred transaction. Unitholders of the Terminating Fund will exchange on a tax-deferred rollover basis their units of the Terminating Fund for units of the Continuing Fund. The Terminating Fund will not realize any net capital gains as a result of the Merger.

19. A notice of meeting, management information circular (the Circular) and a proxy in connection with the Merger will be mailed to unitholders of the Terminating Fund on or about February 27, 2017 and will be subsequently filed on SEDAR.

20. The most recently-filed fund facts documents of the Continuing Fund will also be included in the meeting materials sent to unitholders of the Terminating Fund.

21. The Circular describes how unitholders in the Terminating Fund may obtain, at no cost, a copy of the Offering Documents of the Continuing Fund and its most recent interim and annual financial statements and management reports of fund performance.

22. The Circular provides unitholders of the Terminating Fund with information about the differences between the Terminating Fund and Continuing Fund, the management fees of the Continuing Fund and the tax consequences of the Merger. Accordingly, unitholders of the Terminating Fund will have an opportunity to consider this information prior to voting on the Merger.

23. Unitholders of the Terminating Fund will be asked to approve the Merger at a special meeting scheduled to be held on or about March 24, 2017. If the meeting is adjourned, the adjourned meeting will be held on or about March 27, 2017.

24. The Filer will pay all costs and reasonable expenses relating to the solicitation of proxies and holding the unitholder meeting in connection with the Merger as well as the costs of implementing the Merger, including any brokerage fees.

25. If the requisite approvals are obtained, it is anticipated that the Merger will be implemented on or about March 30, 2017. If unitholder approval is not obtained, the Terminating Fund will be terminated on or about May 1, 2017.

26. The investment portfolio and the other assets of the Terminating Fund to be acquired by the Continuing Fund in order to effect the Merger will be acceptable on or prior to the effective date of the Merger to the portfolio manager of the Continuing Fund and will be consistent with the investment objective of the Continuing Fund.

27. 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.

28. Following the Merger, units of the Continuing Fund received by unitholders in the Terminating Fund as a result of the Merger will have the same sales charge option and, for units purchased under the deferred sales charge option or the volume sales charge option, remaining deferred sales charge schedule as their units in the Terminating Fund.

29. The Merger is conditional on the approval of (i) the unitholders of the Terminating Fund; and (ii) the Principal Regulator. If the necessary approvals are obtained, the following steps will be carried out to effect the Merger:

(a) Unitholders of the Terminating Fund will be asked at a Special Meeting of unitholders to approve the Merger and such other matters as are set forth in the applicable resolutions in respect of the Merger.

(b) Prior to effecting the Merger, the Terminating Fund will liquidate portfolio securities that do not meet the investment objective and investment strategies of the Continuing Fund.

(c) The Terminating Fund will determine the amount of income and net taxable gains (if any) it has realized during the taxation year including the date of the Merger. If applicable, the terminating Fund will distribute sufficient net income and net capital gains to Unitholders to ensure that the Terminating Fund will not be subject to tax under Part I of the Tax Act.

(d) The Continuing Fund will acquire the portfolio securities and other assets of the Terminating Fund in exchange for units of the Continuing Fund.

(e) The Continuing Fund will not assume any liabilities of the Terminating Fund and the Terminating Fund will retain sufficient cash to satisfy its estimated liabilities, if any, as of the date of the Merger.

(f) The units of the Continuing Fund received by the Terminating Fund will have an aggregate net asset value equal to the value of the portfolio securities and other assets that the Continuing Fund is acquiring from the Terminating Fund, and the units of the Continuing Fund will be issued at the applicable series net asset value per unit as of the close of business of the effective date of the Merger.

(g) Immediately thereafter, units of the Continuing Fund will be distributed to unitholders of the Terminating Fund in exchange for their units in the Terminating Fund on a dollar for dollar and series-by-series basis, as applicable. The units of the Continuing Fund received by unitholders in the Terminating Fund will have the same sales charge option and, for unit purchases under the deferred sales charge option or the volume sales charge option, remaining deferred sales charge schedule as their units in the Terminating Fund.

(h) Following the Merger, and in any case within 60 days thereof, the Terminating Fund will be wound up.

30. As required by National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), the Filer 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 unitholders of the Funds.

31. The Terminating Fund and the Continuing Fund are mutual fund trusts under the Tax Act and, accordingly, units of both Funds 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.

32. The Manager believes that the Merger will be beneficial to unitholders of the Funds for the following reasons:

(a) following the Merger, unitholders of the Terminating Fund will gain investment exposure to a diversified portfolio of holdings in emerging market countries throughout the world;

(b) unitholders of the Terminating Fund will not be subject to any increased management fees as the management fees that are charged to the Series A, Series F Series D, Series N and Institutional Series units of the Continuing Fund are the same as, or less than, the management fees that are currently charged to the Series A, Series F, Series D, Series N and Institutional Series units of the Terminating Fund;

(c) unitholders of the Terminating Fund and the Continuing Fund will enjoy increased economies of scale as part of a larger combined Continuing Fund; and

(d) the Continuing Fund, because of its greater size, may benefit from its larger profile in the marketplace.

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.

“Darren McKall”

Darren McKall, Manager Investment Funds & Structured Products Branch Ontario Securities Commission