Excel Funds Management Inc. and Excel Blue Chip Equity Fund

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger -- approval required because the merger does not meet the criteria for pre-approved reorganizations and transfers in National Instrument 81-102 -- the fundamental investment objectives of the terminating fund and the continuing fund are not substantially similar -- unitholders of the terminating fund are provided with timely and adequate disclosure regarding the merger.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(b), 19.1.

November 16, 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 JURISDICTION AND IN THE MATTER OF EXCEL FUNDS MANAGEMENT INC. (the Manager) AND EXCEL BLUE CHIP EQUITY 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 Balanced Fund (formerly, Excel EM Blue Chip Balanced 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 Continuing Fund are currently qualified for sale under a simplified prospectus, annual information form and fund facts documents, each dated September 18, 2017 (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.

The Merger

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

11. 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 a reasonable person may not consider the fundamental investment objectives of the Terminating Fund and that of the Continuing Fund to be "substantially similar".

12. Except for the reason noted in paragraph 11 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.

13. The Manager is of the view that the Merger will not be a "material change" for the Continuing Fund.

14. No sales charges will be payable in connection with the acquisition by the Terminating Fund of the units of the Continuing Fund.

15. 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.

16. A press release in respect of the proposed Merger was filed on SEDAR on September 1, 2017 and a corresponding material change report was filed on SEDAR on September 8, 2017. Units of the Terminating Fund ceased to be available for sale on September 13, 2017.

17. The Manager has determined that it would be most efficient to implement the Merger as a "qualifying exchange" under the Income Tax Act (Canada) (the Tax Act). 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, however, will realize all of its accrued net capital gains as a result of the liquidation of its portfolio assets in connection with the Merger, and those net capital gains will be distributed to unitholders of the Terminating Fund to the extent necessary to eliminate any tax liability in the Terminating Fund.

18. A notice of meeting, management information circular (the Circular) and a proxy in connection with the Merger was mailed to unitholders of the Terminating Fund on October 20, 2017 and was subsequently filed on SEDAR.

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

20. 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.

21. 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 had the opportunity to consider this information prior to voting on the Merger.

22. Unitholders of the Terminating Fund approved the Merger at a special meeting held on November 10, 2017.

23. 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.

24. It is anticipated that the Merger will be implemented on or about November 17, 2017.

25. The following steps will be carried out to effect the Merger:

(a) Prior to effecting the Merger, the Terminating Fund will liquidate all of its portfolio securities for cash.

(b) The Terminating Fund will determine the amount of income and net capital gains it has realized during the taxation year including the date of the Merger (including net capital gains realized on the liquidation of portfolio securities described in (b) above). The Terminating Fund will distribute sufficient net income and net capital gains to unitholders of the Terminating Fund to ensure that the Terminating Fund will not be subject to tax under Part I of the Tax Act.

(c) The Terminating Fund will subscribe for units of the Continuing 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 on the date of the Merger.

(d) 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.

(e) 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.

26. 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, and in any case within 60 days of the Merger.

27. 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.

28. 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.

29. 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.

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

(a) unitholders of the Terminating Fund will gain investment exposure to a diversified mix of equity and income mutual funds which are predominantly emerging markets in nature;

(b) unitholders of the Terminating Fund will not be subject to any increased management fees as the management fees that are charged to Series A and Series F units of the Continuing Fund are less than the management fees that are currently charged to Series A and Series F 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.

"Vera Nunes"

Manager

Investment Funds & Structured Products Branch

Ontario Securities Commission