'I feel Framlington have been a bit naughty,' he said. 'I did not hear about the merger until after it had taken place. I would have thought a merger would require that all unitholders would be consulted.'
Mr Taylor contacted Framlington and was told that only the investors in the Smaller Companies trust were consulted. They had to take a vote on whether to have their holdings merged with the Capital trust.
By merging the Smaller Companies fund into his fund, Mr Taylor argued, the nature of the trust he invested in has been changed.
Capital trust invests in small and medium-sized UK companies whereas the Smaller Companies trust had a narrower objective, investing in UK companies with market capitalisations of less than pounds 150m. Mr Taylor feels Capital trust's performance can only worsen through taking over its sister trust's portfolio.
Anne McMeehan, managing director of Framlington Unit Management, said it was not obliged to inform investors in the Capital trust about the merger.
Capital trust had pounds 98.7m under management compared to only about pounds 5.3m in Smaller Companies.
Securities and Investments Board rules governing the merger of trusts require that investors in a fund that is to disappear must give their approval.
But investors in the trust that is in effect taking over a smaller fund do not have to give their approval if the trustees of the larger fund are satisfied that investors' interests are not harmed. Trustees must also ensure that the objectives of the larger trust will not be diluted.
Ms McMeehan said that Capital trust invested in a number of companies held by the Smaller Companies trust. Those stocks that were not held by the Capital trust already were in extremely small holdings and would not affect the overall performance of the merged trust.Reuse content