The purpose of this letter is to inform you of a proposed merger (the Merger) by which the net assets of the Rathbone Blue Chip Income and Growth Fund (the Blue Chip Fund) will be transferred into the Rathbone Income Fund (the Income Fund).
We are required to notify you of the proposed Merger; however, you do not need to take any action in relation to this notification.We believe that the Merger is in the best interests of the unitholders of the Income Fund as, following the Merger, the net asset value of the Income Fund will increase as a result of the Merger and so the fixed costs of the Income Fund will be spread over a larger asset base. The costs of the Merger are being borne by Rathbone Unit Trust Management Limited (the Manager). Further information about the proposed Merger is set out below.
1. Background to and rationale for the proposed Merger
The Manager, which is the authorised fund manager of both the Blue Chip Fund and the Income Fund, has proposed the Merger having considered the circumstances of both the Blue Chip Fund and the Income Fund.
The background and rationale to the proposed Merger is that the Manager currently operates two funds within the Investment Association’s UK Equity Income sector, being the Blue Chip Fund and the Income Fund.
The Income Fund was established in 1971 and as at 30.04.2018 was valued (bid value) at £1,262,417,695.01. The Blue Chip Fund was established in 1989 and as at 30.04.2018 was valued (bid value) at £61,308,650.47.
Both funds follow the same investment process, have broadly similar investment objectives, and are managed by different individual managers from the same investment team. Both have good long-term records of dividend and capital growth. However, whilst the Income Fund has been attractive to a broad investor base, the Blue Chip Fund has failed to resonate, principally in the Manager's view because there has been too little differentiation between the two funds. In recent years, the manager of the Blue Chip Fund has attempted to differentiate the portfolio by making it a more focussed, higher conviction list, but a result has been greater volatility, which is not perhaps the best outcome for investors. A reversal of this policy does inform the proposal to merge two very similar funds.
By amalgamating the Blue Chip Fund with the Income Fund, which has similar investment objectives, a larger fund will be created, and investors should see benefits in terms of economies of scale, lower expenses and greater opportunity for objectives to be achieved through access to a wider asset class.
2. The funds and the merger
The Blue Chip Fund and the Income Fund are each authorised unit trusts which are authorised pursuant to Directive 2009/65/EC on the Co-ordination of Laws, Regulations and Administrative Provisions relating to Undertakings for Collective Investment in Transferable Securities Directive (UCITS Directive), as implemented in the United Kingdom.
In order for the Merger to be effected, the Blue Chip Fund’s unitholders must approve the Merger at an extraordinary general meeting of the Blue Chip Fund’s unitholders (EGM) that will take place on 3rd October 2018.
Under the proposal, if the Merger is approved the net assets of the Blue Chip Fund would be transferred to the Income Fund and be allocated to the Income Fund. The net assets of the Blue Chip Fund will be consistent with the investment objective and policies for the Income Fund. In return for the transfer of net assets from the Blue Chip Fund to the Income Fund, the holders of I-Class and R-Class units in the Blue Chip Fund will, on 5th October 2018 (Effective Date), receive I-Class and R-Class units respectively in the Income Fund.
3. Likely impact to you as a unitholder
It is anticipated that the impact is likely to be positive in that the net asset value of the Income Fund will increase as a result of the Merger and as a result, each unitholder's pro rata costs should decrease since the fixed costs of the Income Fund will be spread over a larger asset base.
The Income Fund is a master UCITS, which means that a feeder fund invests at least 85% of its investment capital into the Income Fund. The Income Fund has two feeder funds: Rathbone Income Fund Accumulation Sub-Fund (Accumulation Sub-Fund) and Rathbone Income Fund Income Sub-Fund (Income Sub-Fund), both of which are Luxembourg-domiciled funds.
We will notify the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg financial regulator, of the proposed Merger. An application will also be made to the CSSF for the Accumulation Sub-Fund and the Income Sub-Fund to continue to be feeders to the Income Fund after the Merger.
Given the similarities in investment approach between the Blue Chip Fund and the Income Fund, we do not expect the Merger to have any material impact on the portfolio of the Income Fund. Further, we do not expect that there will be any significant rebalancing of the portfolio of the Income Fund either before or after the Merger takes effect.
4. Key Investor Information Documents
The key investor information document (KIID) for the R-Class units and the I-Class units of the Income Fund are enclosed. The KIID for the Income Fund’s S-Class units is also included however, the Blue Chip Fund’s unitholders will not receive S-Class units as a result of the Merger.
Please note that the ongoing charges figures contained within these KIIDs are based on expenses prior to the Merger. It is anticipated that the ongoing charges for the Income Fund will be lower after the Merger than the ongoing charges currently shown in this document. Updated KIIDs including a revised ongoing charges figure will be issued in the event that the Merger proceeds.
5. Operation of the Merger
An extraordinary general meeting (EGM) of the unitholders of the Blue Chip Fund will be convened to consider the resolutions to approve the Merger. In order for the Merger to be effective, the special resolutions to be considered at the EGM of the Blue Chip Fund require the approval of 75% of those present and voting in person or by proxy.
The key dates for the operation of the Merger are as follows:
The result of Blue Chip Fund's EGM will be posted on the Manager's website at www.rutm.com.
6. Redemption of units
Unitholders in the Income Fund should note that if they do not wish to continue to hold units in the Income Fund after the Effective Date, they will have the opportunity to redeem part or all of their units at any time up to the Suspension Point (as defined above), free of any charge (except for any charge necessary for the Income Fund to meet disinvestment costs) and subject to the procedures in the prospectus of the Income Fund dated 2 January 2018 (the Prospectus).
Unless you would like to redeem your units prior to the Suspension Point, you do not need to take any further action in relation to the proposed Merger. If the Merger is approved and you do not redeem your units, you will continue to hold your units in the Income Fund.
Please note that unitholders who are normally resident in the UK may be liable to UK taxation on capital gains arising from the sale or other disposal, including redemption, of their units.
Further details relating to unit redemptions can be obtained from us upon request.
7. Consent and confirmation in relation to the Income Fund
Rathbone Unit Trust Management Limited
We, as the authorised fund manager of the Income Fund, confirm that the implementation of the Merger proposal and receipt by the Income Fund of the assets of the Blue Chip Fund:
is not likely to result in any material prejudice to the unitholders in the Income Fund;
is consistent with the investment objectives of the Income Fund; and
can be effected without any breach of a rule in chapter 5 of the Collective Investment Schemes Sourcebook (COLL) of the FCA rules.
National Westminster Bank Plc, in its capacity as the trustee and depositary of the Income Fund (Depositary), has confirmed its agreement to the confirmations set out above.
The Depositary has also informed us that it consents to the references made to it in this document in the form and context in which they appear.
Notification has been made to the UK Financial Conduct Authority (FCA) of the proposed Merger, and the FCA has confirmed that the proposed Merger can be put to unitholders of the Blue Chip Fund at the EGM.
As referred to earlier, the Income Fund is a master fund with two feeder funds, the Accumulation Sub-Fund and the Income Sub-Fund. Notification is being made to the CSSF requesting confirmation that the Accumulation Sub-Fund and Income Sub-Fund can continue as feeder funds in the Income Fund after the Merger.
Rathbone Unit Trust Management Limited will bear all its costs and the costs of the Income Fund’s legal advisers arising from the Merger.
9. Additional information
You have the right to obtain a copy of the report in relation to certain aspects of the Merger as required by Article 42 of the UCITS Directive. Should you wish to obtain a copy of this document please contact Rathbone Unit Trust Management Limited as detailed below.
If you have any questions in relation to the contents of this letter, please contact Rathbone Unit Trust Management Limited at 8 Finsbury Circus, London EC2M 7AZ; telephone: 0330 123 3810; email: firstname.lastname@example.org.