In the current economic climate, ways to streamline, downsize and generally become more efficient can prove valuable in the long run. For the fund industry, one way to realize some efficiencies may be to consider a reorganization of one or more similar funds into another. Reorganizations may be easier than you think. The basic document to be prepared and filed with the SEC is the Form N-14 which serves as both a registration statement and a proxy statement and typically is reviewed by the SEC staff and becomes effective in 30 days. In certain cases, shareholder votes may not be required for a reorganization.
Reorganizations could save in expenses down the road – such as auditor fees or other service provider fees that may be fund-based as well as the fact that having fewer funds can save in amount and length of SEC-required fund filings.
Questions you may want to ask to determine whether a reorganization may be an option are as follows:
--Are the funds to be reorganized similar?
--Do they have similar investment objectives, policies and restrictions and are they managed by the same portfolio manager?
--Do the funds hold similar securities?
--Are the fees of the funds similar?
--Are the service providers of the funds similar?
--What are the asset sizes of the funds? If the reorganizing fund is significantly smaller than the surviving fund, pro forma financial statements may not need to be prepared, thus saving some workload and cost.
Reorganizations may benefit shareholders as well – in the form of economies of scale due to funds with larger asset bases. If liquidating a fund is an option, a shareholder may do better tax-wise with having the option of converting their shares into another fund via a tax-free reorganization.