February 22, 2021
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
HORIZONS ETFS MANAGEMENT (CANADA) INC.
(the Filer)
and
HORIZONS ACTIVE EMERGING MARKETS DIVIDED ETF (HAJ)
and
HORIZONS ACTIVE US DIVIDEND ETF (HAU, and together with HAJ, the Terminating Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Terminating Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) approving the proposed mergers (each a Merger, and collectively, the Mergers) of the Terminating Funds into Horizons Active Global Dividend ETF (the Continuing Fund and, together with the Terminating Funds, the Funds) pursuant to paragraph 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
the Ontario Securities Commission is the principal regulator for this application; and
the Filer has provided notice that paragraph 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Canadian Jurisdictions).
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 and the Funds
The Filer is registered as (a) an investment fund manager in Newfoundland and Labrador, Ontario and Québec, (b) a portfolio manager in Alberta, British Columbia, Ontario and Québec (c) a dealer in the category of exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, (d) a commodity trading adviser in Ontario and (e) a commodity trading manager in Ontario.
The Filer is the manager of each Fund.
Each Fund was established pursuant to a declaration of trust under the laws of Ontario.
Each Terminating Fund is an exchange-traded mutual fund (ETF) whose units are listed on the Toronto Stock Exchange (the TSX).
The Continuing Fund is an ETF whose units are listed on the TSX.
The Filer and each Fund is not in default of securities legislation in any of the Canadian Jurisdictions.
Each Fund is a reporting issuer (or the equivalent) under the securities legislation of each Canadian Jurisdiction and is subject to the requirements of NI 81-102.
Each of the Funds follows the standard investment restrictions and practices established under the Legislation, except to the extent that the Fund has received an exemption to deviate therefrom.
The net asset value (NAV) of each Fund is calculated on each day that the TSX is open for business in accordance with the Funds’ valuation policy and as described in each Fund’s prospectus.
Reason for Approval of the Mergers
Regulatory approval of the Mergers is required because the Mergers do not satisfy all the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102. In particular, a reasonable person may not consider (i) each of the Terminating Funds to have substantially similar fundamental investment objectives as the Continuing Fund and (ii) HAU to have a substantially similar fee structure as the Continuing Fund.
The investment objectives of each Terminating Fund and the Continuing Fund are as follows:
HAJ
HAU
Continuing Fund
To seek long-term returns consisting of regular dividend income and modest long-term capital growth. HAJ invests primarily in equity and equity related securities of companies with operations in emerging market economies.
To seek long-term returns consisting of regular dividend income and modest long-term capital growth. HAU invests primarily in equity and equity related securities of U.S. companies or companies with a substantial presence in the United States listed on a U.S. exchange.
To seek long-term returns consisting of regular dividend income and modest long-term capital growth. The Continuing Fund invests primarily in equity and equity related securities of companies with operations located anywhere in the world.
Each of the Terminating Funds and the Continuing Fund have similar fee structures. However, while HAJ and the Continuing Fund currently pay a management fee to the Filer equal to 0.65% of the NAV of the applicable Fund’s units, HAU currently pays unitholders a management fee to the Filer equal to 0.55% of the NAV of HAU’s units.
Except as described above, the Mergers will otherwise comply with all the other criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102.
Although the investment objectives of each of the Terminating Funds may not be substantially similar to the Continuing Fund, in the Filer's view:
(a) the fundamental investment objectives of the Funds are similar in that each seek long-term returns consisting of regular dividend income and modest long-term capital growth; and
(b) each Terminating Fund has a similar investment mandate as the Continuing Fund and would generally attract the same type of investor with a similar risk-return profile.
The Proposed Merger
The Filer intends to merge each of the Terminating Funds into the Continuing Fund.
The Merger was announced in a press release on January 29, 2021, and a corresponding material change report was filed via SEDAR on February 1, 2021.
As required by National Instrument 81-107 Independent Review Committee for Investment Funds, the Filer presented the terms of the Mergers to the independent review committee of each of the Funds (the IRC) for their review. The IRC determined that the Mergers, if implemented, will achieve a fair and reasonable result for the Terminating Funds.
The Filer is convening special meetings (each, a Meeting and together, the Meetings) of the unitholders of the Terminating Funds on or about March 2, 2021 in order to seek the approval of the unitholders to complete the Mergers, as required by paragraph 5.1(1)(f) of NI 81-102.
The Filer has concluded that the Mergers are not a material change to the Continuing Fund, and, accordingly, there is no intention to convene a meeting of unitholders of the Continuing Fund to approve the Mergers pursuant to paragraph 5.1(1)(g) of NI 81-102.
By way of order dated November 4, 2016, the Filer was granted relief (the Notice-and-Access Relief) from the requirement set out in paragraph 12.2(2)(a) of National Instrument 81-106 Investment Fund Continuous Disclosure to send a printed management information circular to unitholders while proxies are being solicited, and, subject to certain conditions, instead allows a notice-and-access document (as described in the Notice-and-Access Relief) to be sent to such unitholders. In accordance with the Filer’s standard of care owed to the Funds pursuant to securities legislation, the Filer will only use the notice-and-access procedure for a particular meeting where it has concluded it is appropriate and consistent with the purposes of notice-and-access (as described in Companion Policy 54-101CP Communication with Beneficial Owners of Securities of a Reporting Issuer) to do so, also taking into account the purpose of the meeting and whether the Funds would obtain a better participation rate by sending the management information circular with the other proxy-related materials.
Pursuant to requirements of the Notice-and-Access Relief, a notice-and-access document and applicable proxies in connection with the Meetings and any adjournment thereof, along with the ETF Facts of the Continuing Fund were mailed to unitholders of the Terminating Funds on or about January 29, 2021, and were filed via the System for Electronic Document Analysis and Retrieval (SEDAR) immediately prior to such mailing. A management information circular in respect of the Meetings (the Circular), which the notice-and-access document provided a link to, was also filed via SEDAR at the same time.
If all required approvals for the Mergers are obtained, it is intended that the Mergers will occur on a date in March 2021 (the Effective Date). The Filer therefore anticipates that each unitholder of each Terminating Fund will become a unitholder of the Continuing Fund after the close of business on the Effective Date. Each Terminating Fund will be wound-up as soon as reasonably practicable following the Mergers.
The tax implications of the Mergers as well as the differences between the investment objectives and other features of the Terminating Funds and the Continuing Fund will be described in the Circular, so that unitholders may make an informed decision before voting on whether to approve the Mergers. The Circular will also describe the various ways in which unitholders can obtain a copy of the prospectus of the Continuing Fund and its most recent interim and annual financial statements and management reports of fund performance.
Unitholders of each Terminating Fund will continue to have the right to sell their units of the Terminating Funds on the TSX at any time until the units are delisted, which will occur shortly prior to the Mergers being implemented. In addition, if unitholders of the Terminating Funds approve the Mergers at the Meetings, unitholders of the Terminating Funds who do not wish to participate in the Mergers will also have the opportunity to redeem their units of the Terminating Funds in accordance with the declaration of trust of the Terminating Funds prior to the Effective Date.
The costs of preparing and sending the proxy materials and of the solicitation of proxies, as well as other costs and expenses associated with the Meetings and the Mergers, will be borne by the Filer.
No sales charges will be payable by unitholders of the Funds in connection with the Mergers.
The investment portfolio and other assets of each Terminating Fund to be acquired by the Continuing Fund in order to effect the Mergers are currently, or will be on or prior to the Effective Date, acceptable to the portfolio manager of the Continuing Fund and are, or will be, consistent with the investment objectives of the Continuing Fund.
Steps of the Mergers
- The specific steps to implement the Mergers are expected to be as follows:
(a) Each Terminating Fund will transfer all or substantially all of its net assets to the Continuing Fund in consideration for the issuance by the Continuing Fund to each Terminating Fund of a number of units of the Continuing Fund (the Continuing Fund Units) determined based on an exchange ratio established as of the close of trading on the business day immediately preceding the effective date of the Mergers.
(b) The Exchange Ratio (as defined below) will be calculated based on the relative net asset values of the units of each Terminating Fund and the Continuing Fund Units.
(c) Immediately following the transfer of assets of each Terminating Fund to the Continuing Fund and the issuance of Continuing Fund Units to each Terminating Fund, all of the units of each Terminating Fund will be automatically redeemed. Each unitholder will receive such number of Continuing Fund Units as is equal to the number of units of the applicable Terminating Fund held, multiplied by the applicable Exchange Ratio of such units.
(d) Units of each Terminating Fund will be redeemed by each Terminating Fund in exchange for Continuing Fund Units at an exchange ratio (the Exchange Ratio) calculated based on the relative net asset value of each of the units of each Terminating Fund and the Continuing Fund Units at the close of trading on the TSX on the business day prior to the effective date of the Mergers.
(e) Units of each Terminating Fund will be de-listed from the TSX and each Terminating Fund will cease to be a reporting issuer in each of the provinces and territories of Canada.
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, provided that the Filer obtains the prior approval of the unitholders of the Terminating Funds for the Mergers at the Meetings, or any adjournment thereof.
“Darren McKall”
Darren McKall
Investment Funds and Structured Products
Ontario Securities Commission
Application #2021/0035
SEDAR # : 3176135