Unitholders of seven Citadel funds have rejected a proposal to merge the funds with the Crown Hill Fund, and despite strong support among unitholders, a hostile proposal from Brompton Administration Ltd. and Bloom Investment Counsel, Inc. was also rejected.

At a special meeting held by Citadel Fund Administrator on Wednesday, unitholders voted on a proposed reorganization that included the merger of the Crown Hill Fund with eight of the recently acquired Citadel funds into a continuing fund.

The eight Citadel funds included: Citadel Premium Income Fund; Citadel S-1 Income Trust Fund; Citadel Stable S-1 Income Fund; Citadel Diversified Investment Trust; Series S-1 Income Fund; Equal Weight Plus Fund; Citadel SMaRT Fund; and Citadel HYTES Fund.

Unitholders of Equal Weight Plus Fund approved the reorganization plan, with 75.09% of votes cast in favour of the plan, exceeding the 50% minimum requirement. But none of the other funds achieved the minimum thresholds of 50% support for some of the funds, or 75% support for others. As a result, the Equal Weight Plus Fund will merge with the Crown Hill Fund and will be renamed the Citadel Income Fund, but there will be no changes to any of the other Citadel Funds.

Under a special redemption privilege, unitholders of the Equal Weight Plus Fund will be able to redeem their units prior to the merge.

“We are extremely disappointed by the fact that these meetings were frustrated and did not produce a clear result,” said Wayne Pushka, president of the Citadel Fund Administrator.

The company had expected the reorganization to result in a broader investment mandate, greater liquidity, and increased long-term value creation for unitholders.

Unitholders at the meeting also voted on a hostile proposal from Brompton Administration and Bloom Investment Counsel, seeking unitholder support for a new administrator and investment manager for five of the Citadel funds.

These funds included Citadel HYTES Fund, Series S-1 Income Fund, Citadel Premium Income Fund, Citadel S-1 Income Trust Fund, and Citadel Diversified Investment Trust.

Blue Ribbon Fund Management Ltd., an associated company of Bloom Investment Counsel and Brompton Administration, proposed combining the funds into a single fund called Blue Ribbon High Income Fund, managed by Bloom Investment Counsel. The new fund would be modeled after the Citadel Diversified Income Fund, and would charge management fees 25% lower than those in the Crown Hill Proposal, unrestricted annual redemption rights, and enhanced unitholder protection and governance, according to Blue Ribbon.

The independent board of directors of the Citadel Fund Administrator had unanimously recommended that unitholders vote against the hostile proposal. The company said the proposal represented a conflict of interest, and expressed concern over the fact that Blue Ribbon had not submitted the proposal to an independent review committee.

At Wednesday’s meeting, more than half of unitholders of each fund voted in favour of the proposal, with support ranging from 58.1% to 74.4% of unitholders. But support from 75% of unitholders was required for the resolutions to be passed.

“Clearly unitholders expressed a strong desire to support the Blue Ribbon proposal for these funds however, the high threshold of 75% made it difficult to achieve,” commented Mark Caranci, president of Blue Ribbon Fund Management.

IE