Northern Rivers Capital Management Inc. and Northern Rivers Evolution Fund

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval of mutual fund merger -- approval required because merger does not meet the criteria for pre-approval -- merger not a "qualifying exchange" or a tax-deferred transaction under the Income Tax Act -- financial statements of continuing fund not required to be sent to unitholders of the terminating fund in connection with the current merger and future mergers provided the information circular sent for unitholder meeting clearly discloses the various ways unitholders can access the financial statements.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 5.5(1)(b), 5.6(1)(f)(ii).

April 16, 2009

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

NORTHERN RIVERS CAPITAL MANAGEMENT INC.

(the Filer)

AND

NORTHERN RIVERS EVOLUTION FUND

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer and the Northern Rivers Evolution Fund (the Terminating Fund) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for:

a) approval under paragraph 5.5(1)(b) of NI 81-102 of the merger (the Merger) of the Terminating Fund into the Northern Rivers Conservative Growth Fund (the Continuing Fund); and

b) relief from the financial statements delivery requirements contained in subsection 5.6(1)(f)(ii) of NI 81-102 in respect of:

(i) the Merger; and

(ii) all future mergers of mutual funds managed by the Filer or an affiliate of the Filer (the Future Mergers, which together with the Merger are referred to as the Mergers)

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon, and Nunavut.

Interpretation

Defined terms contained in National Instrument 14-101 - Definitions have the same meaning in this decision unless they are defined in this decision. The following additional terms shall have the following meanings:

Current Simplified Prospectus means the simplified prospectus dated August 25, 2008, as amended, that qualifies the Funds for sale;

Fund or Funds means, individually or collectively, the Terminating Fund and the Continuing Fund;

Tax Act means the Income Tax Act (Canada).

Representations

This decision is based on the following facts represented by the Filer:

1) The Filer is a corporation established under the laws of Canada.

2) The Filer is the manager and trustee of each of the Funds. The head office of the Filer is located in Ontario.

3) Each of the Funds is an open-end investment trust established under the laws of Ontario by a declaration of trust.

4) The Filer intends to reorganize the Funds such that the Northern Rivers Evolution Fund will be merged into the Northern Rivers Conservative Growth Fund.

5) Securities of the Funds are currently qualified for sale by the Current Simplified Prospectus and an annual information form dated August 25, 2008, as amended, which have been filed and accepted in all of the provinces and territories of Canada (except Quebec).

6) Each of the Funds is a reporting issuer in all of the provinces and territories of Canada (except Quebec) and is not in default of securities legislation in any jurisdiction of Canada.

7) Other than circumstances in which the securities regulatory authority of the Jurisdiction has expressly exempted a Fund therefrom, each of the Funds follows the standard investment restrictions and practices established under the Legislation of the Jurisdiction.

8) The net asset value for the mutual fund units of each of the Funds is calculated on a daily basis on each day that the Toronto Stock Exchange is open for business.

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

10) The portfolios and other assets of the Terminating Fund to be acquired by the Continuing Fund arising from the Merger will be acceptable, on or prior to the effective date of the Merger, to the portfolio adviser of the Continuing Fund and will be consistent with the investment objectives of the Continuing Fund.

11) Unitholders of the Terminating Fund will continue to have the right to redeem units of the Terminating Fund for cash at any time up to the close of business on the business day immediately before the Merger.

12) A press release was issued on February 19, 2009. Amendments to the simplified prospectus and annual information form of the Terminating Fund with respect to the Merger were filed via SEDAR on February 20, 2009. A material change report was filed on February 26, 2009.

13) A notice of meeting, a management information circular and a proxy in connection with meetings of unitholders (collectively, the Meeting Materials) as well as the Current Simplified Prospectus, related to the Continuing Fund were mailed to unitholders of the Terminating Fund, commencing on or about March 17, 2009, and were filed via SEDAR.

14) Unitholders of the Terminating Fund approved the Merger at a meeting held on April 7, 2009.

15) The Terminating Fund will merge into the Continuing Fund on or about the close of business on April 30, 2009 and the Continuing Fund will continue as a publicly offered open-end mutual fund governed by the laws of Ontario.

16) The Terminating Fund will be wound up as soon as reasonably possible following the Merger.

17) The Filer will pay for the costs of the Merger. These costs consist mainly of brokerage charges associated with the merger-related trades that occur both before and after the date of the Mergers and legal, proxy solicitation, printing, mailing and regulatory fees.

18) Approval of the Merger is required because the Merger does not satisfy all of the criteria for pre-approved reorganizations and transfers set out in section 5.6 of NI 81-102 in the following ways:

(a) contrary to section 5.6(1)(b) of NI 81-102, the merger of the Northern Rivers Evolution Fund into the Northern Rivers Conservative Growth Fund will not be completed as a "qualifying exchange" within the meaning of section 132.2 of the Tax Act or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the Tax Act; and

(b) contrary to section 5.6(1)(f)(ii) of NI 81-102, the most recent annual and interim financial statements for the Continuing Fund will not be sent to the unitholders of the Terminating Fund. Instead, the Filer will send to each unitholder of a Terminating Fund a management information circular fully describing the relevant merger, which will include a statement describing how unitholders can obtain the financial statements, management report of fund performance and annual information form for the relevant Continuing Fund.

19) The tax implications of the Merger as well as the differences between the Terminating Fund and the Continuing Fund are described in the Meeting Materials so that the unitholders of the Terminating Fund may consider this information before voting on the Merger.

20) The Filer believes that the Merger will benefit unitholders of the Terminating Fund and Continuing Fund for the following reasons:

(a) unitholders of the Terminating Fund and the Continuing Fund may enjoy increased economies of scale and may experience lower fund operating expenses (which are borne indirectly by unitholders) as part of a larger combined Continuing Fund;

(b) the Merger will eliminate the administrative and regulatory costs of operating the Terminating Fund as a separate mutual fund;

(c) the Continuing Fund will have a portfolio of greater value, allowing for increased portfolio diversification opportunities; and

(d) the Continuing Fund, as a result of its greater size, will benefit from its larger profile in the marketplace.

In addition, unitholders of the Terminating Fund will acquire units of the Continuing Fund that have a management fee that is equal to the management fee currently charged to units of the Terminating Fund.

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 in connection with the Mergers:

(a) the information circular sent to securityholders in connection with a Merger provides sufficient information about the Merger to permit securityholders to make an informed decision about the Merger;

(b) the information circular sent to securityholders in connection with a Merger prominently discloses that securityholders can obtain the most recent interim and annual financial statements of the applicable continuing fund by accessing the SEDAR website at www.sedar.com, by accessing the Filer's website, by calling the Filer's toll-free telephone number or by faxing a request to the Filer;

(c) upon request by a securityholder for financial statements, the Filer will make best efforts to provide the securityholder with financial statements of the Continuing Fund in a timely manner so that the securityholder can make an informed decision regarding a Merger; and

(d) the Terminating Fund and the Continuing Fund have an unqualified audit report in respect of their last completed financial period.