Connor, Clark: GFO/AUI

Documents
(SEDAR filing: 25 April 2013) Circular of Connor, Clark & Lunn Financial Opportunities Fund ("GFO") respecting its merger into Australian Banc Income Fund ("AUI") (110 K). Osler
Summaries
Summary Under
Tax Topics - Public Transactions - Mergers & Acquisitions - REIT/Income Fund/LP Acquisitions - Section 132.2 Mergers - Portfolio Mutual Fund Mergers
Merger of Connor, Clark & Lunn Financial Opportunities Fund into Australian Banc Income Fund
Overview

GFO (which has been an unsuccessful Connor, Clark mutual fund focused on international financial institution equities) will be merged into AUI under the s. 132.2 merger procedures after GFO unitholders, who wish to realize a capital loss, have been given an opportunity to redeem their GFO units. There will be no change to the Australian bank-equity focus of AUI.

GFO

GFO is a mutual fund trust investing in international financial sector companies. It has two classes of units: 2.2.M Class A units with a NAV and closing price on the TSX of $5.21 and $5.10 per unit on March 31; and 63K Class F units (not listed) with a NAV of $5.38. It has had negative NAV performance since its IPO in July 2007 for gross proceeds of $50M, and has experienced substantial unit redemptions.

AUI

AUI is a mutual fund trust investing in the common shares of the five largest Australian banks. It has two classes of units: 8.1.M Class A units with a NAV and closing price on the TSX of $11.20 and 10.85 per unit on March 31; and 117K Class F units (not listed) with a NAV of $11.73. It raised gross proceeds of $85.8M on its IPO in March 2011 and has had positive returns since then.

Pre-Merger steps
  • GFO unitholders who do not wish to participate may redeem their units no later than May 31, 2013 for their NAV.
  • immediately before the merger, GFO will pay a pro rata portion of the regular monthly distribution in cash, and a special distribution in the form of the issuance of additional GFO units, equal to the net realized capital gains arising in the year to date.
  • immediately after the payment of such special distribution, the GFO units will be consolidated such that the number of previously-outstanding units is restored.
Merger steps

Commencing on or about June 11, 2013:

  • GFO will transfer all or substantially its assets to AUI in consideration for AUI Class A and F units, with the exchange ratios based on relative net asset values on the immediately preceding business day
  • Immediately thereafter, all the GFO units will be automatically redeemed for AUI Class A or F units based on the exchange ratios
  • GFO and AUI will jointly elect under s. 132.2 within six months

No fractional AUI units or cash in lieu thereof will be issued or paid. GFO units will be delisted, and GFO will be wound up. Transaction costs will be borne by GFO.

Canadian tax consequences

Advance redemption. A GFO unitholder who redeems in advance of the merger will realize a capital gain or loss based on the redemption proceeds for its units. No allocation of income or capital gains will be included in those proceeds.

Special distribution

GFO will make designations under ss. 104(21), 104(19) and 104(22) in respect of net realized capital gains, taxable dividends (including eligible dividends) and foreign-source income (for the GFO taxation year ending immediately after the asset transfer under the merger) included in the special distribution.

Merger

The merger will be implemented as a qualifying exchange under s. 132.2.