Background
In connection with an arm’s length acquisition transaction, apparently of the business of managing (exchange-listed mutual fund trust) Public Funds, as well as pooled-fund trusts (some of which are mutual fund trusts), the proposed transactions allow the “Exchanging Unitholders” (who are holders of Series D Units or Series O Units of some of these Public Funds (Participating Public Funds) and are members of a redacted group to become investors in corresponding New Funds and thereby continue to have their investments managed by the [previous managers], rather than remaining as investors in the Participating Public Funds and having their investments managed by [the new managers].
Proposed transactions
- The New Funds will be formed with the same unit structure and investment objectives as the corresponding Participating Public Funds and with Series D or O Units being issued to the Exchanging Unitholders for nominal consideration that constitutes the only corpus of such trusts.
- Any undistributed income (including net taxable capital gains) of the Participating Public Funds will be made payable to their unitholders.
- Effective after the closing of trading on the Effective Day, each Participating Public Fund will transfer the “Transfer Percentage” (the percentage of the net asset value of the Participating Public Funds represented by the Exchanging Unitholders’ Units) of each of its properties to its corresponding New Fund. The corresponding New Fund will issue Series D and/or Series O Units (as the case may be) to each such Exchanging Unitholder, such that the Net Asset Value of the New Fund Units issued to each Exchanging Unitholder will equal the Net Asset Value of the Exchanging Unitholder’s Units of the corresponding Participating Public Fund immediately before. Also at that time, the Series D and/or Series O Units held by Exchanging Unitholders in the Participating Public Fund will be cancelled for no consideration.
- If and as necessary, each such Participating Public Fund may take advantage of s. 107.4(2.1) of the Act to avoid the need to transfer a fractional share to its corresponding New Fund.
- Certain investors in the [Public Funds] will dispose of their Units in exchange for cash or in kind consideration.
- The Initial Unit (as reduced or subdivided as the case may be, so as to have the same per unit NAV as the newly issued units) for each of the New Funds will be redeemed for an amount equal to its subscription price, i.e. for nominal consideration.
- Where particular New Funds [distinct from those referred to above?] meet the distribution requirements to be mutual fund trusts, the New Fund will effect a s. 132.2 transfer of all its property to the corresponding Exchanging Pooled Fund (also a mutual fund trust) in consideration for units of such transferee, with such units being used to redeem all of the Units of the (New Fund) transferor, and with a joint s. 132.2 election being made. (If the New Fund does not meet such distribution requirement, the s. 132.2 transferor and transferee instead will be the Exchanging Pooled Fund and new Fund, respectively.) In either case, each such transferor will then be terminated.
Rulings
That each transfer of the Transfer Percentage of a property by a Participating Public Fund to its corresponding New Fund will be a “qualifying disposition” within the meaning of subsection 107.4 (1), so that ss. 107.4(3)(a) and (j) will apply. Rulings re subsequent s. 132.2 merger transactions.